The Quick Read: An FHA cash-out loan suits a homeowner with thinner credit or higher debt ratios who lives in the house and wants to tap its equity. A conventional cash-out loan suits stronger files and a wider mix of property uses. Either can fund a down payment, because the cash is yours to spend. The real fork is the next house: FHA generally won’t insure it, so the purchase loan often ends up conventional anyway.
Key Takeaways
- FHA cash-out tops out at 80% of the home’s adjusted value and requires 12 months of owning and living in the home first.
- Conventional cash-out generally expects credit that runs higher than FHA’s 580 decision score floor, and the exact bar varies by lender. Its leverage limit depends on how the home is used.
- On a thirty-year FHA cash-out loan at 80% LTV, the annual mortgage insurance premium ends after eleven years under the program rules. Conventional cash-out usually does not carry private mortgage insurance.
- Your new purchase loan is a separate decision with its own rules. Both mortgage payments count when you qualify.
Side-by-Side
| Factor | FHA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Maximum leverage | 80% of adjusted value | Varies by occupancy and units |
| Credit floor | 580 decision score and up | Generally higher; varies by lender |
| Mortgage insurance | Upfront 1.75% plus annual premium | Usually no private MI |
| Home being refinanced | Principal residence only | Primary, second home or rental |
| Ownership clock | 12 months owned and occupied | Shorter clock; varies |
| Debt ratios | 31/43 base; up to 40/50 with factors | Set by automated findings |
| Documentation | Income, credit, payment history | Income, credit, sometimes reserves |
| Next house on FHA? | Only under narrow exceptions | Any eligible conventional purchase |
Two rows deserve a closer look. “Adjusted value” is not the raw appraisal, so a low appraisal shrinks the cash you can pull. And the last row is the one most borrowers miss.
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.
When FHA Cash-Out Is the Better Fit
FHA is the better fit when credit or debt ratios are your limiting factor and you plan to keep living in the house you are refinancing. The program starts at a 580 decision score across the wholesale lenders Lendmire works with, and documented compensating factors can stretch ratios from the 31/43 base toward 40/50 at the top tier.
Picture a homeowner with a decent payment history, a credit score in the low 600s, and a fair amount of other debt. A conventional underwriter may stall on the ratios. An FHA underwriter has more room to weigh the whole file.
FHA also fits when you want a single, simple occupancy story. The home you live in is the home you refinance. No second-home questions, no rental questions.
The trade-off is cost structure. FHA charges an upfront premium of 1.75% of the base loan, usually financed into the balance. It also charges an annual premium between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. At 80% LTV on a thirty-year loan, that annual premium ends after eleven years under the program rules. Above 90% it would last the full term, but cash-out does not reach that level.
The premium comes out of your net cash, directly or through a bigger balance. If your goal is a down payment, run the numbers on cash left after costs, not cash before them.
FHA also sets a lower ceiling on cash-out than many borrowers remember. HUD cut the cap in Mortgagee Letter 2019-11, and the 80% limit applies to the property’s adjusted value. Articles quoting a higher percentage are out of date.
When Conventional Cash-Out Is the Better Fit
Conventional is the better fit when your credit is strong, your ratios are comfortable, and you want flexibility on what the next house will be. It is also the only route when the refinanced home is not your principal residence. Conventional cash-out is available on primary homes, second homes and rentals, with different limits for each, according to the Fannie Mae Selling Guide and its eligibility matrix.
Cost is the other draw. At the leverage conventional cash-out typically allows, private mortgage insurance usually is not part of the picture. For a borrower with strong credit, that can leave more net cash for the down payment.
The price of that flexibility is a tougher screen. Credit expectations generally run higher than FHA’s floor. Reserves, meaning savings left over after closing, can come into play when ratios run high. Cash-out is also priced with an adjustment based on leverage and credit score, so it is not the same as a plain refinance. Your loan officer can show you how that plays out on your file.
Leverage is the other difference to check. Conventional cash-out generally allows a lower maximum than a conventional rate-and-term refinance, and the exact limit depends on occupancy and unit count. Do not assume it beats FHA’s 80%. Ask for the figure for your property.
If the next house is a second home or a rental, one sentence settles the loan type: occupancy decides the leverage, and FHA does not insure that purchase.
Can You Use FHA Again for the Next House?
Usually not. This is the point where the “cash out and buy another house” plan most often runs into trouble.
FHA insures principal residences only. It does not insure a second home or a rental. If the next house is a vacation property or a rental, the purchase loan has to be conventional or another program.
If the next house is meant to be a new primary residence, FHA is still limited. HUD Handbook 4000.1 allows a second FHA mortgage on a principal residence only when an exception applies. The commonly cited ones are a job relocation, a growing family, leaving a jointly owned home, and a non-occupying co-borrower. Confirm the current wording with your loan officer before building a plan around any of them.
So the practical pattern looks like this:
- Refinance with FHA, buy with conventional. This works if you qualify for both loans at once.
- Refinance with conventional, buy with conventional. This is cleaner when your credit supports it.
- Refinance with FHA, buy with FHA. This is possible only under a narrow exception.
Tell your lender honestly how you will use the next house. Occupancy is declared at application, and misstating it creates serious problems for the borrower.
Refinance First, Then Buy: The Order That Works
The refinance usually has to be finished before you can use the cash. Funds also need a paper trail. Lenders want to see where a down payment came from.
1. Confirm the home you live in meets the ownership and occupancy clock for the loan you want.
2. Get a pre-qualification for both the refinance and the purchase loan, so the two payments are tested together.
3. Complete the refinance and let the proceeds land in your account.
4. Keep the money in that account and out of unrelated spending, so the down payment is easy to document.
5. Apply for and complete the purchase.
Step 2 matters most. Qualifying for the next mortgage means counting the new, larger payment on the house you just refinanced. If you keep the first home, both payments land in your debt ratio. If the second house is a second home or a rental, extra reserve requirements may apply based on how many properties you have financed. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Also plan for the case where the purchase falls through. You would still hold the larger loan, with the equity converted to cash sitting in a bank account. That is a real cost of buying second.
What the Extra Debt Does to You
A cash-out refinance replaces your current mortgage with a bigger one. The CFPB describes the difference clearly: a cash-out refinance takes the place of the original mortgage, while home equity loans and HELOCs leave the first mortgage in place.
That distinction matters for this plan. If your current loan has terms you like, a HELOC or home equity loan could raise the down payment without touching the first mortgage. Both have their own costs and risks, so compare them against a cash-out before you commit.
With a cash-out, you reset the clock and pay closing costs on the full new balance. The payoff may stretch out, and the monthly payment may rise because the new loan is larger.
Add a second mortgage and you are carrying two homes’ worth of obligations.
Key Terms Defined
Cash-out refinance: a new mortgage larger than your current one, where you receive the difference as cash.
Adjusted value: the property value FHA uses to apply its leverage cap, which can differ from the raw appraisal.
Seasoning: the waiting period you must meet, such as 12 months of owning and living in the home, before a loan is reviewed.
Loan-to-value (LTV): the loan balance as a percentage of the home’s value.
Mortgage insurance premium: a charge that protects the lender, paid upfront, monthly, or both.
The Verdict
Neither loan wins on every file. Choose FHA cash-out when credit or debt ratios are the obstacle, you live in the home, and you can live with the premiums. Choose conventional cash-out when your credit is strong, you want to avoid FHA’s mortgage insurance, or the home you are refinancing is not your principal residence.
For the purchase itself, plan on a conventional loan unless you fit one of FHA’s narrow exceptions. Test both payments together before you touch the equity, and compare a HELOC while you are at it.
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. Every figure above is subject to lender guidelines and full file review, and none of it is a commitment to lend.
Frequently Asked Questions
Can I use FHA cash-out money as a down payment on another house?
Yes, the cash is not restricted to specific uses under the program definition. The limits come from the next loan: its occupancy type, reserve rules, and how your lender documents the source of funds. Keep the proceeds in one account so the trail is clear.
Do I have to live in the home I refinance with FHA?
Yes. FHA cash-out is for a principal residence you have owned and occupied for 12 months before the case number is assigned. A rented-out or inherited property does not qualify until you have lived in it for that period.
Does conventional cash-out require mortgage insurance?
Usually not, because leverage generally stays low enough that private mortgage insurance is not part of the loan. Conventional cash-out carries other costs, including pricing adjustments based on credit and leverage. Compare total cost with a loan officer rather than judging by one line item.
Is a cash-out refinance the same as a HELOC?
No. A cash-out refinance replaces your first mortgage with a new, larger loan. A HELOC or home equity loan sits behind it and leaves the first mortgage untouched. Which is better depends on your existing loan’s terms and how much cash you need.
Can a low appraisal shrink my cash?
Yes. FHA applies its 80% cap to adjusted value, so a lower value means less available equity. Conventional limits also depend on the appraised value, though the maximum varies by occupancy and number of units, so ask your loan officer how it applies to your home.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s FHA loan programs page.
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.
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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 Mortgagee Letter 2019-11
2. Fannie Mae Selling Guide: Cash-Out Refinance Transactions
4. CFPB Office of Research blog: cash-out refinances
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 an FHA Cash-Out Sets Up a Later Conventional Refinance · FHA Cash-Out Refinance vs Conventional Cash-Out While Between Jobs · How to Qualify and Apply for an FHA Cash-Out Refinance After 12 Months
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.