The Quick Read: Both loans let you roll closing costs into the new balance, so you can walk in with a checkbook and leave it in your pocket. FHA suits borrowers with thinner credit or a higher debt load who can live with mortgage insurance. Conventional suits borrowers with stronger credit and more equity, where insurance may drop away. Either way, the costs come out of the same capped loan amount, so they shrink the cash you receive.
Key Takeaways
- “No cash to closing” means your costs are financed or netted from proceeds. They are not waived.
- FHA cash-out tops out at 80% of the home’s value. It requires 12 months of ownership and occupancy, and it covers principal residences only.
- FHA charges an upfront premium of 1.75% of the base loan, plus an annual premium. Conventional loans generally skip mortgage insurance at or below 80% LTV.
- FHA usually has the easier credit path. Conventional usually has the cheaper insurance path.
- Thin equity is the real failure point. Costs can eat the whole cash-out before you see a dollar.
What “No Cash to Closing” Actually Means
Zero cash to close does not mean zero cost. It means the costs are paid out of the new loan instead of out of your bank account.
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.
Two numbers get confused here. Cash to close is the money you must bring to the table. Cash-out proceeds are the money you receive after the old loan is paid off and the costs are covered. On a cash-out refinance, the second number absorbs the first. Your costs are subtracted from your proceeds. The Loan Estimate and Closing Disclosure you receive show both lines, and reading them side by side is the best habit a borrower can build.
Here is the mechanical picture, in percentages only. The program caps the new loan at a percentage of the home’s appraised value. From that ceiling, subtract your current mortgage payoff. Then subtract closing costs and any financed mortgage insurance. What remains is your cash.
If that remainder is zero or negative, the refinance doesn’t work as a cash-out, and you would have to bring money to closing instead, which defeats the purpose.
The rest of this piece compares it to the conventional version, so you can pick the one that fits your file.
Side-by-Side
Program figures below reflect the FHA programs Lendmire arranges through wholesale lenders. Conventional details vary by lender and occupancy, so they are described in general terms. All of it is subject to lender guidelines and full file review.
| Factor | FHA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Maximum leverage | 80% LTV | Varies by occupancy and units |
| Credit floor | 580 decision score on most wholesale programs | Typically higher, set by lender |
| Mortgage insurance | 1.75% upfront plus annual premium | Generally none at or below 80% LTV |
| Insurance duration | 11 years at or below 90% LTV | Cancels at set balance points |
| Occupancy | Owner-occupied principal residence | Occupancy sets leverage tier |
| Ownership clock | 12 months owned and occupied | Existing first loan 12 months old |
| Payment history | Mortgage payments on time for 12 months | Lender and findings dependent |
| Debt ratios | 31/43 base; up to 40/50 with compensating factors | Set by findings and lender |
A few notes on the table. The FHA annual premium runs from 0.15% to 0.75% of the balance, depending on term, loan amount and LTV. The “decision score” is the credit score the lender uses to make its decision. FHA county loan limits also apply, and they change every year, so check yours.
When FHA Cash-Out Is the Better Fit
FHA cash-out fits the borrower whose credit or debt ratios would stall a conventional file. It also fits the borrower who needs a cash-out and expects to keep the loan a while.
Credit that is fair, not great. The wholesale programs Lendmire places FHA files with start at a 580 decision score. Conventional lenders generally want more. If your score sits in the low range and your payment history is clean, FHA keeps the door open.
Higher debt-to-income ratios. FHA’s base ratio pair is 31/43, meaning housing costs of 31% of income and total debts of 43%. With documented compensating factors, such as reserves or a strong payment record, ratios can stretch to 40/50 at the top tier. That flexibility is the main reason borrowers pick FHA for a cash-out, and the automated finding governs most files.
A clean last 12 months. Here’s the catch. FHA is flexible on credit but strict on recent mortgage history. The lender must document that every payment on every mortgage you carry was made within the month due, for the prior 12 months or since the loans began, whichever is shorter. HUD’s cash-out guidance treats a recent delinquency as disqualifying.
Credit events in the past. HUD sets waiting periods of two years from a chapter 7 discharge and three years from a foreclosure. These are HUD’s rules, not a promise from any lender. Conventional guidelines on these events are often longer, which is where FHA can help.
You don’t need an FHA loan today. Many homeowners assume FHA cash-out is only for people who already have an FHA mortgage. It isn’t. You can refinance a conventional loan into an FHA cash-out, if you have owned the home and lived in it as your residence for 12 months before the case number is assigned.
Now the tradeoff. FHA lowered its cash-out cap to 80% of value under HUD Mortgagee Letter 2019-11, after the cap had been higher for years. HUD’s announcement of the change pointed to risk from cash-out lending. Older web pages still show the higher cap. Don’t trust them.
The insurance is the other price. You pay 1.75% of the base loan upfront, usually financed into the balance. You also pay the annual premium. Because an 80% cash-out lands at or below 90% LTV, the annual premium typically ends after eleven years. It does not cancel on request the way private mortgage insurance does. Plan to either carry it that long or refinance out of it.
When Conventional Cash-Out Is the Better Fit
Conventional cash-out fits the borrower with strong credit and healthy equity, particularly one who wants to avoid mortgage insurance altogether.
Strong credit and modest ratios. If your score is well above the FHA floor and your debts are manageable, conventional pricing mechanics usually treat you well. Conventional cash-out carries loan-level price adjustments that depend on LTV and credit score, so better credit helps directly. The Fannie Mae Selling Guide describes how cash-out transactions are defined and priced. The exact limits live in its eligibility matrix, and individual lenders may add their own overlays.
Keeping leverage at or under 80%. Conventional mortgage insurance is generally not required at or below 80% LTV. A cash-out at the 80% mark can therefore skip insurance entirely. FHA at the same 80% still charges the upfront premium and an annual premium for eleven years. This is the single biggest cost gap between the two loans for a borrower who qualifies for both.
Insurance that can end on its own schedule. If you do go above 80% LTV, the CFPB explains that private mortgage insurance can generally be requested for cancellation at 80% of the original value, and it ends automatically at 78%. FHA insurance follows its own schedule instead.
Different occupancy. Conventional cash-out can also apply to second homes and other occupancy types, with tighter leverage tiers as occupancy moves away from your primary home. In short, occupancy decides the leverage. FHA cash-out covers your principal residence only.
A different clock. FHA looks at how long you have owned and lived in the home. Conventional looks at the age of your existing first mortgage, measured from its note date to the new loan’s note date. The Selling Guide requires that mortgage to be at least 12 months old. A recent rate-and-term refinance resets that clock, because it creates a new note date. Some lenders add their own rules about how long you have held title, so ask.
Conventional has a catch too. If your credit is thin or your ratios run high, you may not qualify at all. The rules are less forgiving, and the best terms go to the best files.
Running One Home Through Both Loans
Picture a homeowner whose home is worth 100% of its appraised value. The current mortgage payoff is 65% of that value. This is a modeled scenario, not a quote. Costs are described as percentages.
On FHA, the loan caps at 80%. Subtract the 65% payoff and 15% remains. At the cap, the 1.75% upfront premium comes to a bit over 1% of the home’s value. Closing costs come out next. What is left is the borrower’s cash-out. No money was brought to closing, and the premium and costs shrank the check.
On conventional, the cap depends on the lender’s rules for the occupancy type. Say it also reaches 80% for a primary residence. The same 15% of room exists. The difference is that no upfront insurance premium comes out. More of the 15% reaches the borrower, assuming the credit supports it.
Now make the equity thinner. Say the payoff is 76%. Only 4% of value remains under the cap. After the premium and closing costs on FHA, almost nothing is left. The loan might still close, but as a cash-out it has become pointless. Worse, if costs exceed the room, you either bring cash or the deal stops.
That thin-equity result is where borrowers get surprised. Before you apply, do this arithmetic with your own numbers:
1. Estimate your home’s value conservatively.
2. Multiply by the cap that applies to your loan.
3. Subtract your current payoff.
4. Subtract expected costs and any financed insurance.
5. Ask whether the remainder is worth the new balance and the new mortgage insurance.
In FHA files Lendmire arranges, the borrowers who feel best about the result are the ones who ran this math first. The ones who didn’t often discover at the appraisal that value came in lower than they hoped, and the whole cash-out vanished. Appraisal risk hits both programs equally.
What Each Option Does to Your Budget
Cash-out always raises your loan balance. Rolling in costs raises it further, and you pay interest on those costs for the life of the loan. That’s the real price of “no cash to close.”
FHA adds the annual premium to your monthly cost, and the upfront premium adds to the balance. Conventional adds a loan-level price adjustment into the pricing, but may add no mortgage insurance at modest leverage. Which costs more over time depends on your credit, your leverage and how long you hold the loan. It’s a genuine toss-up for borrowers who qualify for both, and honestly, the smaller insurance bill often tips it toward conventional when the credit supports it.
There is also an exit question. Some borrowers take an FHA cash-out now, planning to refinance into conventional once their equity builds and the insurance becomes the larger cost. That works, but a second refinance means a second round of closing costs. Run the break-even before counting on it.
Key Terms Defined
Cash-out refinance: A new first mortgage that pays off your current loan and gives you the leftover equity in cash.
Loan-to-value (LTV): The loan amount divided by the home’s appraised value, shown as a percentage.
Cash to close: The money you must bring to the closing table beyond what the loan covers.
Cash-out proceeds: The money you receive after your old loan and all costs are paid.
Seasoning: The waiting period a loan or ownership must meet before you can refinance.
Upfront premium: The one-time FHA mortgage insurance charge, 1.75% of the base loan, usually financed.
Annual premium: The yearly FHA mortgage insurance charge, collected monthly and based on your term, loan amount and LTV.
Decision score: The credit score the lender uses to decide your file.
The Balanced Verdict
Pick FHA if your credit is fair, your debt ratios are tight, or a past credit event keeps conventional out of reach. Accept that the mortgage insurance will stay for roughly eleven years at a typical cash-out leverage.
Pick conventional if your credit is strong and your equity is deep. Insurance may be unnecessary at or below 80% LTV, and what you do pay can generally be cancelled.
If you qualify for both, price them side by side using the actual figures on each Loan Estimate. Compare the full terms, not just the cash. Skip any option that leaves you almost nothing after costs.
Eligibility for either program remains subject to lender guidelines, credit approval and full file review. Nothing here is a commitment to lend.
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.
Frequently Asked Questions
Do I need an existing FHA loan to get an FHA cash-out refinance?
No. You can refinance a conventional loan into an FHA cash-out. What matters is that at least one borrower has owned and lived in the home as a principal residence for the 12 months before the case number is assigned. The payment history rule also applies, so your mortgage payments must have been made on time.
Which one is cheaper overall?
It depends on your credit and leverage. FHA charges an upfront premium of 1.75% of the base loan and an annual premium, while conventional generally skips mortgage insurance at or below 80% LTV. A borrower with strong credit often finds conventional cheaper. A borrower with fair credit may find conventional unavailable or priced higher. Compare two actual Loan Estimates.
Can FHA mortgage insurance be cancelled like PMI?
Not on request. On an FHA loan with a lower starting loan-to-value, the annual premium ends after eleven years. On a thirty-year loan with a higher starting loan-to-value, it lasts for the term. Many FHA borrowers refinance out of it sooner if their equity and credit improve. Private mortgage insurance on a conventional loan follows different cancellation rules. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
What if my equity is only just enough for the loan?
The loan may close, but you’d receive little or nothing. Costs and financed premiums come out of the room beneath the cap. If that room is gone, you would have to bring cash to closing. Estimate your numbers using the five steps above before you apply, and expect the appraisal to move them.
Is a limited cash-out refinance the same thing?
No. A limited cash-out refinance pays off your current mortgage and lets you add closing costs, but it caps how much cash you can take. If you only want to lower costs or change your term, ask about that option instead. It can be an easier path for borrowers with little equity. Lenders set the exact limit.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s FHA loan programs page.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. 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 2020-30
2. HUD Mortgagee Letter 2019-11
3. HUD Press Release on FHA Cash-Out Refinance Risk
4. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
5. CFPB: When Can I Remove Private Mortgage Insurance PMI from My Loan
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 Qualify and Apply for an FHA Cash-Out Refinance After 12 Months · How Lenders Underwrite an FHA Cash-Out Refinance Versus Limited Cash-Out Refinance
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
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.