FHA Cash-Out Refinance vs Conventional Cash-Out Minimum Credit Score

The Quick Read: FHA usually asks for a lower credit score than conventional, but it does not let you borrow more against your home. Both programs stop at roughly the same equity line on a primary residence. FHA suits borrowers with fair credit, moderate equity and a higher debt load. Conventional suits borrowers with stronger scores who want to avoid FHA’s mortgage insurance structure. Every figure here is subject to lender guidelines and full file review, and nothing is a commitment to lend.

Side-by-Side

The table below compares the two programs on the points that matter most. Pricing is left out on purpose, because it depends on your full file and the Loan Estimate shows it.

Two terms need a plain definition. LTV (loan-to-value) is your new loan divided by your home’s appraised value. A decision score is the single credit score the lender uses to judge your file when more than one score exists.

Why the Printed FHA Floor Is Not the Real Floor

HUD, the agency that sets FHA rules, publishes a floor below 580. The wholesale programs where Lendmire places FHA files start at 580, so a score in the 500s is not a realistic path on this lane.

That gap between an agency minimum and a lender’s own minimum has a name: an overlay. An overlay is a lender rule that sits on top of the program rule. Individual lenders set their own, so the same score can pass at one and fail at another. Don’t treat the agency floor as a promise.

Conventional works the same way, with a twist. Manually underwritten conventional cash-out loans tend to need a score in the low-to-mid 600s. Loans run through automated underwriting are judged on the whole file, so no single printed number tells the story. Check the current Fannie Mae Eligibility Matrix for the grid your lender works from.

The Equity Limit Is a Tie

Many borrowers assume FHA lets them take out more. It doesn’t. HUD Handbook 4000.1 sets the FHA cash-out maximum at 80% of the home’s adjusted value. HUD lowered that cap from a higher level, citing a surge in cash-out refinances and a wish to protect equity, per Orrick’s summary of the change.

On a conventional cash-out for a primary home, the standard cap lands in the same neighborhood. So the credit score doesn’t buy you extra cash on either side. The appraisal does the heavy lifting here. A low appraisal shrinks the cash you receive, and it can erase it.

The cash itself works the same way on both programs. The new loan pays off your current first mortgage and any required liens. What’s left over is yours.

What Each Program Charges for Mortgage Insurance

FHA mortgage insurance has two parts. The upfront premium is 1.75% of the base loan, and it can be financed into the balance. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. These are program facts, not prices you can negotiate.

Duration matters. On a thirty-year FHA loan above 90% LTV, the annual premium lasts the whole term. At or below 90%, it ends after eleven years. A cash-out tops out at 80%, so the shorter clock is the one that applies to a thirty-year cash-out loan. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

Conventional has no FHA-style upfront premium. Private mortgage insurance generally isn’t required at an 80% loan-to-value. But conventional cash-out carries pricing adjustments tied to score and LTV, and they get heavier as scores fall. These adjustments depend on score, loan purpose, occupancy and product type. A lower score therefore costs more on both paths.

When FHA Is the Better Fit

Look at the debt ratios first. FHA’s base pair is 31/43: housing costs at 31% of income and total debts at 43%. With documented compensating factors (steady employment, cash reserves, a small payment change), the ceiling reaches 40/50 at the top tier. Conventional automated review can be forgiving too, but high ratios on a conventional cash-out can trigger added reserve requirements, per the Fannie Mae matrix.

Credit events also change the picture. HUD’s waiting periods are two years from a Chapter 7 discharge and three years from a foreclosure. Those are HUD rules, not a promise from any lender. Conventional waiting periods after the same events are generally longer. If a past credit event is the issue, FHA often gets you to the table sooner.

FHA fits you best when:

• Your score sits in the range where conventional pricing gets steep.
• Your debt-to-income ratio is high but documented factors back it up.
• You’ve owned and lived in the home for at least 12 months and your mortgage payments are current.
• You plan to stay put long enough that the premium is a fair trade for approval.

One honest limit: FHA cash-out is for your principal residence only. If you’re thinking about a second home or a rental, occupancy decides the leverage, and FHA isn’t the tool.

When Conventional Is the Better Fit

Conventional wins when your score is strong and your equity is healthy. You skip FHA’s upfront premium, and you aren’t locked into a mortgage insurance structure that outlasts the loan’s usefulness.

Strong credit also moves your pricing in the right direction. Fannie Mae’s loan-level price adjustment grid has a separate cash-out section, organized by score and LTV. The better your score and the lower your LTV, the lighter the adjustment. With a score well above the floor, conventional may come out cheaper than FHA once everything is stacked together, though that depends on your file. Your Loan Estimate shows the real comparison.

Conventional also handles more property situations. Caps drop for two-to-four-unit homes and for non-owner-occupied properties, but the options exist. FHA cash-out doesn’t offer them.

Conventional fits you best when:

• Your score is well above the minimums on either program.
• You have meaningful equity left after the cash-out, and the appraisal supports it.
• Your first mortgage is at least 12 months old, and you’ve been on title for at least six months as described in this Federal Home Loan Bank announcement.
• You’d rather avoid mortgage insurance premiums on the new loan.

Three Borrowers, Three Different Answers

Picture a homeowner with a fair score in the low 600s, 25% equity and a debt ratio near the top of the range. Conventional pricing for that score is steep, and the debt ratio may trigger extra reserves. FHA looks more natural here, subject to file review.

Now consider a borrower with a score well into the 700s and 30% equity. FHA’s premium structure adds cost she doesn’t need. Conventional is the likelier winner, and the new loan sits comfortably under the 80% line.

Then there’s the borderline case: a score a few points under 580. On the programs we place, FHA is closed to that file as it stands. The fix isn’t to shop harder. It’s to move the score.

If Your Score Is Just Under the Line

A score just under the line can often be improved, though no result is guaranteed. Here is where to start:

1. Pay down credit card balances. Utilization (how much of your limit you’re using) moves scores more than most borrowers expect.

2. Ask your loan officer about a lender-ordered credit rescore once balances drop, so the new number reaches the file.

3. Dispute genuine errors on your reports and let the corrections post.

4. Add a co-borrower if it makes sense. With more than one borrower, lenders generally work from one decision score, so a weaker co-borrower can pull the file down instead of lifting it.

5. Document compensating factors: job stability, savings, and a payment history that shows you handle debt well.

Skip opening new credit lines while you wait, since a new account can sometimes pull the score down.

Recent mortgage payment history deserves its own flag. A late mortgage payment in the past year can block an FHA cash-out loan, as the comparison table above shows. If you have one, waiting out the clock may work better than a workaround.

What About Leaving FHA Later?

Choosing FHA now doesn’t trap you. If your score and equity improve, you can refinance into a conventional loan and drop the FHA premium. Just remember the new loan has its own closing costs and its own eligibility test. Whether the swap pays off depends on how long you’d keep the loan.

Other Ways to Tap Equity

A cash-out refinance replaces your whole first mortgage. A home equity loan or a HELOC (home equity line of credit) adds a second loan and leaves your first mortgage alone. If your current first mortgage is one you’d rather keep, that structure may suit you better. Eligible veterans may also have a VA cash-out option. Each of these has its own credit and equity rules, so compare them against the full picture before you commit.

Key Terms Defined

Overlay: A lender’s own rule that sits on top of the program’s published minimum.

Seasoning: The waiting period a lender wants between buying or occupying a home and doing a cash-out loan.

Loan-level price adjustment: A conventional pricing add-on based on score, LTV and loan purpose.

The Balanced Verdict

Lower score, higher debt, a bumpy credit history: FHA usually gives you the better shot. Strong score, solid equity, no appetite for FHA’s premiums: conventional usually costs less. Equity limits don’t separate them.

So the real question is which program your file fits cleanly, not which one is “better.” Compare both on a Loan Estimate before you pick.

Next Step

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. Call 828-256-2183 to talk through your score and your equity.

For your own numbers, request a scenario review with Lendmire.

About Lendmire

Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. Fannie Mae Eligibility Matrix

2. HUD Handbook 4000.1

3. Orrick’s summary of the change

4. Fannie Mae Loan-Level Price Adjustment Matrix

5. Federal Home Loan Bank announcement