The Quick Read: Choose FHA if your credit is middling or your debt load is heavy, and conventional if your credit is strong and you plan to keep the loan for years. FHA suits borrowers with thinner credit who can live with insurance that lasts. Conventional suits stronger files, because mortgage insurance can fall away once the loan sits at or below 80% of value. Both programs cap a one-unit home at 80% of its value, so the real differences are the waiting clocks, insurance and underwriting.
The Honest Answer First
Pick FHA if your credit is solid but not great, your debt load is on the heavy side, or your file needs the flexibility FHA’s documented compensating factors allow. Pick conventional if your credit is strong and you want the loan to carry no ongoing mortgage insurance at 80% leverage. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
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.
On a primary home, neither path gives you more cash than the other. That 80% limit covers the whole new loan: the payoff, the costs and any second lien. The cash you receive is what is left over.
The waiting clocks are what trip up recent buyers. Equity, credit and insurance decide which program makes sense once the clock runs out.
Side-by-Side
| Factor | FHA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Max leverage (one-unit home) | 80% of adjusted value | 80% of value |
| Ownership clock | 12 months owned and occupied | Six months on title |
| Existing-loan clock | Payment history reviewed | Loan being paid off must be 12 months old |
| Occupancy | Principal residence only | Primary, second home or other, at lower caps |
| Credit floor | Lenient; network starts at 580 | Typically higher |
| Mortgage insurance | Upfront plus annual premium | Generally none at or below 80% |
| Documentation | Automated finding, ratios up to 40/50 with factors | Automated underwriting; reserves can apply |
| Exception for cash buyers | None that I know of | Delayed financing |
The conventional figures follow Fannie Mae’s Selling Guide and are subject to the current eligibility matrix and lender guidelines. Lender overlays can be stricter.
How the Clocks Actually Run
FHA counts occupancy. At least one borrower must have owned and lived in the home as a principal residence for 12 months before the FHA case number is assigned. The count runs back from the case number, not from closing. Appreciation does not shorten it. A buyer whose home jumped in value after six months still waits.
Conventional runs two clocks. One borrower must have been on title for six months before the new loan is disbursed. Separately, the mortgage being paid off generally needs to be at least 12 months old, measured from its note date. Those are different tests, and a file has to pass both. Have the loan officer confirm both against the current Selling Guide, because lender rules can differ.
Picture a buyer who closed on a purchase and wants cash after the first year. FHA’s 12-month occupancy test is met. Conventional’s six-month title clock passed long ago, and the 12-month note-age test lines up with it. Both doors are open, and the choice turns on cost and credit.
Now picture a buyer eight months in. FHA is closed. Conventional’s title clock is met, but the existing loan is still too young. Appreciation changes nothing here. Waiting does.
When the FHA Cash-Out Is the Better Fit
FHA works best in these situations:
- Credit that sits in the middle. Across the wholesale programs Lendmire places FHA files with, a decision score of 580 is the starting point. Conventional cash-out typically asks for more, and some lenders set their own higher floors.
- Heavier debt loads. The base ratio pair is 31/43. Documented compensating factors can stretch to 40/50 at the top tier, and the automated finding governs most files.
- An existing FHA loan. An FHA-to-FHA cash-out is a new FHA loan.
- Principal residence only. FHA cash-out is built for the home you live in. If that describes your situation, there is no occupancy problem.
The cost is mortgage insurance. FHA charges an upfront premium of 1.75% of the base loan, usually financed, plus an annual premium between 0.15% and 0.75% of the balance. The range depends on term, loan amount and LTV. On a thirty-year loan above 90% LTV, the annual premium lasts for the loan’s term. At or below 90%, it ends after eleven years. Cash-out at 80% sits below that line, but the upfront premium still applies, and an FHA-to-FHA cash-out starts a new premium schedule.
The cap itself has a history worth knowing. HUD Mortgagee Letter 2019-11 lowered the FHA cash-out limit from 85% to 80%, after earlier cuts. HUD’s announcement tied the change to risk on cash-out loans. FHA is no longer the high-leverage cash-out option it once was.
When the Conventional Cash-Out Is the Better Fit
Conventional tends to fit these borrowers better:
- Strong credit. A higher score typically brings better pricing and fewer adjustments. Cash-out loans carry loan-level price adjustments based on LTV and credit score, so file strength matters.
- A plan to stay long term. Mortgage insurance generally drops off at or below 80% LTV. That can matter more over many years than any short-term difference.
- Different occupancy. Conventional cash-out can reach second homes and other occupancy types at lower leverage caps. FHA cash-out is limited to a principal residence.
- Cash purchases. Delayed financing lets someone who bought with cash within the last six months do a cash-out refinance without waiting out the title clock. It is still treated as cash-out, with cash-out limits and adjustments. It waives only the wait, and FHA has no matching option for cash buyers.
- Exceptions to the title clock. Inheritance and a legal award are listed exceptions on the conventional side.
The tradeoff is documentation. Conventional files run through automated underwriting, and on cash-out loans with debt-to-income above 45%, reserves can apply, per Fannie Mae’s eligibility matrix. A borrower with thin savings and a heavy debt load can find the file harder on the conventional side, even with a good score.
Which Fits Which Borrower
| Your situation | Usually leans toward |
|---|---|
| Middle credit, higher debt ratios | FHA |
| Strong credit, plans to keep the loan for years | Conventional |
| Current FHA loan, owned and lived in 12+ months | Either, compare insurance |
| Owned under 12 months, over six on title | Conventional, if the loan is old enough |
| Bought with cash recently | Conventional (delayed financing) |
| Inherited and rented before moving in | Conventional; FHA restarts the occupancy clock |
Treat that as a starting lens, not a verdict. Two borrowers with identical equity can land on different sides depending on reserves and how long they plan to stay.
The Insurance Question Behind the Choice
Mortgage insurance is the biggest structural difference. FHA’s premium is part of the program. An FHA-to-FHA refinance does not remove it. It starts again. Conventional insurance, where it applies, is tied to leverage, and a cash-out at or below 80% generally avoids it.
If you plan to sell or move within a few years, insurance duration matters less, and the lower credit bar can be worth the cost. If you plan to hold for a decade, the insurance schedule deserves real attention.
What a Cash-Out Does to Your Budget
A cash-out replaces your first mortgage with a larger one. Using mortgage debt to pay off other debt can also raise foreclosure risk, as the CFPB has reported. Debt payoff was the most common use of proceeds in the survey years that report covers.
A repair that protects value, or a debt payoff that removes a higher-cost balance, tends to hold up. Vague “just in case” cash is where regret shows up. Also, the 80% test applies after the cash is taken, so the usable amount is smaller than most borrowers expect.
Mistakes That Restart or Break the Clock
- Counting from closing instead of the case number on the FHA side.
- Assuming appreciation shortens the wait. It doesn’t.
- Renting the home out before moving in. FHA occupancy has to be real, and an inherited home rented out restarts the clock.
- Ignoring loan age on the conventional side. Six months on title does not help if the loan being paid off is too new.
- Missing payments during the wait. Payment history is tested on both paths.
- Treating delayed financing as a loophole. It is still cash-out.
Frequently Asked Questions
Can I do an FHA cash-out refinance if I bought less than 12 months ago?
Generally no. FHA’s cash-out requires 12 months of ownership and occupancy before the case number is assigned. Rising value does not shorten that. A rate-and-term refinance follows different rules, and the leverage allowed is lower when you have occupied the home for less than a year. Ask the loan officer which path fits your timeline.
Does conventional cash-out only require six months of ownership?
Six months on title is one clock, but not the only one. The mortgage being paid off generally needs to be at least 12 months old as well. Both tests have to pass, and lenders can add their own overlays on top.
Is the maximum cash-out different between FHA and conventional?
For a one-unit primary home, both cap total financing at 80% of value. That cap includes the payoff, costs and any second lien, so cash in hand is smaller than the cap suggests. Differences show up in credit, insurance and underwriting instead. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Can I cancel after closing?
Usually yes, for a refinance on the home you live in. The CFPB explains that the right runs until midnight of the third business day after you sign, receive the required disclosures and notices. Rescinding does not cancel your original loan.
I bought with cash. Which path helps?
Conventional delayed financing is designed for that case, and FHA has no equivalent that I know of. It is still cash-out for limits and pricing, so the cash returned follows documented purchase cost rather than a fresh appraisal alone.
The Balanced Verdict
The 12-month FHA occupancy rule is strict. Conventional has two clocks of its own, six months on title and a payoff loan at least 12 months old, and both tests have to pass. If your credit is strong and you plan to stay, conventional generally carries less insurance over time. If your credit or ratios are tighter, FHA may be the only practical route.
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. Program details are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
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 (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. 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. Fannie Mae Selling Guide, B2-1.3-03 Cash-Out Refinance Transactions
2. HUD Mortgagee Letter 2019-11
3. HUD press release on FHA cash-out risk
4. Fannie Mae Eligibility Matrix excerpt
5. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
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 to Get Through the Appraisal on an FHA Cash-Out Refinance · How Lenders Underwrite an FHA Cash-Out Refinance Without a Mortgage · How to Compare FHA and Conventional Cash-Out Refinance Limits
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.