The Quick Read: It depends on the condo and on how much cash you need, not on the loan labels. FHA cash-out has a loan-to-value ceiling and requires that you have owned and lived in the home for 12 months, and a second lien does not raise that ceiling, because the liens are counted together. Conventional cash-out can fit a stronger-credit borrower, but the condo project has to pass a lender review either way.
FHA suits the borrower whose credit or debt ratios are tighter and whose condo project is already FHA-approved. Conventional suits the borrower with solid credit and equity, especially if the project is not on the FHA list. A second lien is a way to keep a low first mortgage, not a way to borrow more.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.18% as of November 5, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not an FHA cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the FHA cap on a principal residence with the upfront premium financed, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
An illustration, not a Loan Estimate, an approval, a quote, or a commitment to lend. The rate shown is the weekly Freddie Mac thirty-year conventional benchmark, used as a market reference; an FHA cash-out is priced by the lender at lock, and this is not an FHA cash-out refinance quote. HUD’s cap limits the base loan; the upfront premium is financed on top of the capped base loan; the monthly premium for the first year follows the snapshot’s schedule. Cash available means the base loan the cap permits less the balances retired, before closing costs, which this calculator leaves out. The line figure applies the line program’s combined loan-to-value ceiling to the same value and balance. Taxes and insurance are estimates you can edit. Licensed in sixteen states for consumer mortgages.
Side-by-Side
| Factor | FHA cash-out (first lien replaced) | FHA cash-out with a second lien | Conventional cash-out |
|---|---|---|---|
| Leverage | Up to 80% LTV | Combined liens held to the same 80% | Varies by occupancy and unit count |
| Credit floor | 580 decision score at the network level | Same, plus the second lender’s own standards | Often set higher by lenders |
| Mortgage insurance | Upfront and annual premium | Same, on the new FHA first | Depends on leverage |
| Occupancy | Principal residence only | Principal residence only | Primary, second home or multi-unit, each with its own limits |
| Condo review | FHA project approval or single-unit approval | Same | Lender project review, unless exempt |
| Documentation | Payment history, payoffs, project papers | Adds the second lien’s consent paperwork | HOA questionnaire and project financials |
Program details are subject to lender guidelines and full file review. This is not a commitment to lend.
Replace or Add: What Each Structure Does
A cash-out refinance replaces your first mortgage with a larger one and hands you the difference. A second lien leaves your first mortgage alone and adds a separate loan behind it. That is the whole structural contrast.
The “FHA with a second lien” scenario can mean two things. You might pay off an existing second lien inside the new FHA first mortgage. Or you might keep that second in place, which requires the second lender to agree to sit behind the new FHA loan. That agreement is called subordination, and it depends on a third party’s cooperation.
Either way, the ceiling holds. HUD cut the FHA cash-out cap from 85% to 80% in Mortgagee Letter 2019-11, and the HUD Handbook 4000.1 transmittal confirms the Handbook was updated to match. Because the test is combined, the first mortgage and any second are measured together against the appraised, adjusted value. Keeping a second doesn’t create extra room. It only changes which debts are in the stack.
The Condo Is Often the Deciding Factor
For a condo, the building can decide the outcome before your credit does. FHA will not insure a loan on a unit in a project that hasn’t been approved, unless the unit clears single-unit approval. HUD’s FHA Connection condo help page describes both routes, and a condo in an expired or never-approved project falls in the second group.
Single-unit approval isn’t a rubber stamp. HUD’s condominium page says the project must be complete, have at least five units, and not be a manufactured home. It must also meet a subset of the project tests. Those tests look at owner-occupancy, how many units are investor-held, and the association’s financial condition. The Federal Register rule that set up this framework used ranges, with exact figures set separately. Current thresholds should be confirmed against the Handbook, so this article leaves them out.
Conventional has its own gate. Lenders generally review the project through a full or limited review of the HOA’s budget, reserves, litigation and owner-occupancy. Some transactions are exempt, such as detached condos and two- to four-unit projects, per Fannie Mae’s project review waiver rules. Attached units in a five- to ten-unit project that is part of a larger development still need a full review.
In practice, a project can pass one test and fail the other. We see files where the building is FHA-approved and the borrower’s credit is thin, which points to FHA. We see the reverse too: a strong borrower in a building FHA never approved, which points to conventional. Ask for the project’s status early. It narrows the choice faster than anything else.
When FHA Cash-Out Is the Better Fit
FHA is usually the better fit when these things line up:
- The condo project is FHA-approved, or the unit plausibly clears single-unit approval.
- Your credit score or debt ratios are tighter than conventional lenders like. The wholesale programs Lendmire places FHA files with start at a 580 decision score.
- You’ve owned and lived in the unit for at least 12 months before the case number.
- You’re comfortable with mortgage insurance, which includes an upfront premium of 1.75% of the base loan (financed) and an annual premium that depends on term, amount and LTV.
- You want one payment, so you pay off the second lien inside the new first mortgage.
Ratios matter here. The base FHA pair is 31/43, housing to total. Documented compensating factors can stretch that toward 40/50 at the top tier, and the automated finding governs most files. HOA dues count in housing expense, and adding a second payment raises your total obligations.
The trade-off is the ongoing cost of mortgage insurance. On a thirty-year FHA loan with leverage at or above the program’s higher tier, the annual premium lasts the whole term. A cash-out capped at 80% falls below that line, so the premium ends after eleven years. Even so, it is a cost that a stronger-credit borrower might avoid elsewhere. If your credit is strong and the building isn’t FHA-approved, FHA stops making sense. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
When Conventional Cash-Out Is the Better Fit
Conventional tends to win when your credit and equity are strong and the building isn’t on the FHA list. It also wins when you want flexibility on occupancy. Conventional cash-out has separate categories for second homes and multi-unit properties, according to Fannie Mae’s eligibility matrix. FHA cash-out is for the home you live in, full stop. If the question is whether the condo is a second home, occupancy decides the leverage, and FHA isn’t an option.
Conventional also has a seasoning rule. If your existing first mortgage is being paid off, it must be at least 12 months old, per Fannie Mae’s cash-out guidance. That requirement doesn’t apply to subordinate liens, and paying off a second of any age is an acceptable use of proceeds.
Lenders’ leverage caps differ by occupancy and unit count, so confirm the exact number for your unit on the matrix before you plan around it. Some lenders also set a higher credit floor than the agency minimum.
The trade-off: if your credit or debt ratios are marginal, conventional may simply say no where FHA says yes. And a conventional project review can stall on HOA financials you don’t control.
Keeping the Second Lien: When It Makes Sense
Keeping a second lien only makes sense if your existing first mortgage is worth protecting, which means it is cheaper than anything available now. In that case, a second lien (or leaving both loans alone) beats a cash-out that replaces the first.
There are costs. You carry two payments. The second lender must consent to subordination, and that can delay or derail a file. For a conventional cash-out, Fannie Mae treats taking cash while leaving a second in place as a full cash-out, not a limited one.
The CFPB’s guidance on home equity options notes that a cash-out refinance may cost more or less than a HELOC, depending on terms. That is the right frame. The question isn’t which product is better in the abstract. It’s which structure costs less for your balance and your cash need.
If the first mortgage is adjustable, the comparison changes, because its rate can move and the cost of keeping it is no longer fixed.
Matching the Path to Your Situation
| Your situation | Likely lean |
|---|---|
| FHA-approved building, tighter credit | FHA cash-out |
| Strong credit, building not FHA-approved | Conventional cash-out |
| Low existing first mortgage worth keeping | Second lien or no refinance |
| Condo is a second home | Conventional (occupancy decides) |
| Want one payment | Pay off the second inside a new first |
| Need cash beyond 80% combined | Neither path reaches it |
None of these is a rule. Qualifying, the appraisal and the project review still decide the result.
Common Mix-Ups
“A second lien lets me borrow past 80% on FHA.” It doesn’t. The cap covers all liens together.
“Keeping my second makes this a lighter refinance.” Taking cash with a second in place is treated as cash-out on the conventional side.
“If I’m already in an FHA condo, approval is automatic.” Project approval has to be current, or the unit needs single-unit approval. The questionnaire exemption applies to FHA streamlines, not cash-out. A single-unit approval also isn’t an approval of the building itself.
“A cash-out refinance is a second mortgage.” It isn’t. It replaces your mortgage. A home equity loan or HELOC adds one.
“80% is what I’ll get.” It’s a ceiling, not a promise.
Key Terms Defined
Cash-out refinance: a new, larger mortgage that replaces your current one and pays you the difference in cash.
Second lien: a separate loan secured by the same home that is paid after the first mortgage if the home is sold.
Combined loan-to-value (CLTV): all liens on the home added together and divided by its value.
Subordination: the second lender’s agreement to rank behind the new first mortgage.
Single-unit approval: FHA’s route for insuring a loan on a condo unit when the building isn’t FHA-approved.
Frequently Asked Questions
Can a second lien let me cash out more than 80% on an FHA loan?
No. HUD measures the first mortgage and any subordinate liens together against the 80% cap. A second lien changes how the debt is split, not how much total debt the home can carry.
Do I need an existing FHA loan to do an FHA cash-out?
No. FHA cash-out is open to qualifying homeowners who have owned and lived in the home for 12 months before the case number, whatever their current loan type. The condo project’s approval status still matters, and so does your payment history.
Does the condo’s HOA affect conventional cash-out too?
Yes. Conventional lenders review the project’s financials, reserves, litigation and owner-occupancy, unless an exemption applies. A weak HOA budget can slow or stop a file even when your own credit is strong.
Can I refinance FHA into conventional cash-out later?
Often, yes, if your credit, equity and project review support it. Conventional requires an existing first mortgage to be at least 12 months old, so timing matters. People commonly do this once their credit improves and mortgage insurance stops making sense.
Where does the cash usually go?
The CFPB’s research on cash-out borrowers found many use proceeds to pay down other debt, especially credit cards and auto loans. A larger mortgage can raise your payment and extend your payoff timeline, so weigh that against what you’re paying off.
The Balanced Verdict
Neither structure wins in general. FHA cash-out fits a primary-residence condo in an approved building when credit or ratios are tight. Conventional fits stronger credit, flexible occupancy, or a building FHA never approved. A second lien is for borrowers protecting a low first mortgage, and it adds a payment and a third party’s consent. Start with the project’s approval status, then your equity, then your credit.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. HUD Handbook 4000.1 transmittal
2. HUD FHA Connection condo help
4. Federal Register, Project Approval for Single-Family Condominiums
5. Fannie Mae’s project review waiver rules
6. Fannie Mae’s eligibility matrix
7. Fannie Mae Selling Guide, cash-out refinance transactions
8. CFPB’s guidance on home equity options
9. CFPB’s research on cash-out borrowers
This article is part of Lendmire’s FHA cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Lenders Count a Second Lien Toward a Condo FHA Cash-Out Cap · How FHA Cash-Out Underwriting Reads an Unapproved Condo Project · Cash-Out Refinance Lenders to Move From FHA to Conventional With 20 Percent Equity
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.