The Quick Read: FHA cash-out tends to suit homeowners with thinner credit or higher debt loads, while conventional cash-out tends to suit stronger files that want to avoid FHA’s insurance layer. Both let you finance closing costs, but those costs sit inside the same capped loan amount. Every dollar you roll in is a dollar of cash you can’t take home.
The Honest Answer First
Pick FHA when your credit or debt-to-income ratio is the obstacle. Pick conventional when your file is strong and you’d rather not carry FHA mortgage insurance. Most homeowners fall clearly into one camp after a quick look at their score, their equity and how long they’ve owned the home.
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.
Rolling closing costs in works the same way on both loans. It also raises your balance, so you pay interest on those costs for the life of the loan. That is a trade, not a freebie.
Here is the part most comparison pages skip. The leverage cap applies to the whole new loan, not just the cash you receive. Payoff, financed costs and cash out all share one ceiling. Your appraisal sets that ceiling, so a low value can shrink your cash or erase it.
Key Takeaways
- FHA cash-out tops out at 80% of the home’s value, and you must have owned and lived in the home for 12 months before the case number.
- FHA charges an upfront premium of 1.75% of the base loan (which can be financed) plus an annual premium.
- Conventional cash-out has no FHA-style premium, and private mortgage insurance generally isn’t needed at or below 80% leverage, though conventional cash-out limits are typically lower than that.
- Financed closing costs reduce your cash dollar for dollar. They don’t sit outside the cap.
- Every figure here is a program guideline, subject to lender guidelines and full file review. None of it is a commitment to lend.
Side-by-Side
FHA figures reflect the wholesale programs Lendmire places loans with. Conventional terms vary more by lender, so that column stays general.
| Factor | FHA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Maximum leverage | 80% LTV | Varies by occupancy and units |
| Credit floor | 580 decision score | Often higher; varies by lender |
| Mortgage insurance | 1.75% upfront, plus annual | Generally none at or below 80% |
| Occupancy | Principal residence only | Primary, second home, others at lower caps |
| Debt ratios | 31/43 base; up to 40/50 with factors | Set mostly by automated findings |
| Time in the home | Owned and occupied 12 months | Seasoning on the existing first mortgage |
A quick definition: LTV (loan-to-value) is your new loan balance divided by the home’s appraised value. At 80% LTV, you keep at least 20% equity in the house after closing. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
What “Rolled Into the Loan” Actually Does
Financing closing costs means the new loan balance covers them instead of your bank account. The new loan then has three parts: payoff of your old mortgage, the financed costs, and your cash. Together they must fit under the cap.
Picture a home where the old mortgage equals 60% of the appraised value. Say financed costs run about 4% of value. Under an 80% cap, that leaves roughly 16% of value to take as cash. If you paid those same costs from your savings instead, the loan would have room for about 20% of value as cash. The math is modeled, not a quote.
FHA adds a wrinkle. The upfront premium is a percentage of the base loan, and it can be financed too.
Paying costs out of the proceeds, instead of building them into the balance, gets you to the same place mechanically: the cash that reaches you is smaller by the amount of the costs. Either way, the costs come out of your equity.
The CFPB’s Closing Disclosure explainer says rolling costs into the loan lowers what you owe upfront but adds to the overall cost because of the extra interest. It also makes a point borrowers miss: “closing costs” and “cash to close” are two different numbers on your paperwork.
One more practical note. Loans marketed as “no closing cost” aren’t free. The costs are built into the interest rate, rolled into the balance, or taken from your proceeds. Ask which one it is.
When FHA Cash-Out Is the Better Fit
FHA is the better fit when your credit score, debt load or credit history stands between you and a conventional approval. It is built for homeowners who have real equity but a file that isn’t pristine.
Here is what that looks like in practice.
Credit. Across the wholesale programs Lendmire places FHA files with, the floor is a decision score of 580. Some conventional lenders set a higher floor. If you sit near the bottom of that range, FHA may be the only cash-out path open to you.
Debt ratios. The base FHA pair is 31/43. That means housing costs up to 31% of income and total debts up to 43%. Documented compensating factors, such as reserves or a stable job history, can stretch that to 40/50 at the top tier. The automated underwriting finding governs most files. FHA often gives more room here than conventional, though the answer depends on your whole file.
Past credit events. HUD sets waiting periods after major events: two years from a Chapter 7 discharge and three years from a foreclosure. Those are HUD’s rules, not a promise from any one lender. Conventional waiting periods are set by each lender’s guidelines, so ask about yours.
Primary residence. FHA cash-out is for the home you live in. If that’s what you have, there’s no friction.
FHA has real costs, and you should weigh them honestly. You pay the upfront premium of 1.75% of the base loan, and you pay an annual premium. That annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV.
How long the annual premium lasts depends on your LTV. On a thirty-year loan above ninety percent LTV, the annual premium lasts the whole term. At or below ninety percent, it ends after eleven years. Because FHA cash-out caps at 80%, a thirty-year cash-out generally lands in the shorter bucket. Confirm that on your actual file, since the schedule depends on term and amount.
The HUD Handbook 4000.1 is HUD’s source for FHA policy. It gets revised, so any rule change should be checked there before you rely on a summary, including this one.
When Conventional Cash-Out Is the Better Fit
Conventional is the better fit when your credit is solid, your ratios are comfortable and you’d rather skip FHA’s premiums entirely. It is the cleaner product for a strong file.
No FHA-style premium. There is no upfront premium and no annual FHA premium. Private mortgage insurance (PMI), which protects the lender when you borrow above 80% of value, generally isn’t needed at or below that level. A cash-out refinance capped near that line often avoids it. Conventional loans can also carry pricing adjustments based on leverage and credit score, per the Fannie Mae Selling Guide on cash-out refinances. Those adjustments show up in your quoted terms, so compare the full Loan Estimate, not one line of it.
More flexibility on property type. Conventional guidelines reach second homes at lower leverage. FHA does not. If occupancy is the question, it decides how much you can borrow.
Cleaner long-term costs. A strong-credit borrower who rolls in costs on a conventional loan avoids stacking a mortgage insurance premium on top of a bigger balance. Over a long horizon, that gap can matter.
Seasoning. Conventional loans have their own waiting-period rule. Fannie Mae’s announcement SEL-2023-01 added a minimum age for the existing first mortgage, counted from note date to note date. If you refinanced recently, that clock could delay a conventional cash-out even when equity is plentiful.
The trade-off is that conventional underwriting is usually less forgiving. A lower score, a recent credit event or high debts can end the conversation. Some lenders also hold stricter standards than the agency minimums.
Edge Cases Worth Knowing
- Recently bought home. FHA’s 12-month ownership and occupancy test usually rules out a cash-out on a home you just bought. Conventional programs have limited exceptions, such as financing after a cash purchase, but they come with their own rules.
- Home with no mortgage. A new loan on a free-and-clear home still counts as cash-out.
- Existing FHA loan. An FHA Streamline refinances an FHA loan with no appraisal and a limited credit review, but it doesn’t put cash in your hand. Different product, different purpose.
- Limited cash-out. A conventional refinance that pays off your loan and returns only a small amount is treated differently from a full cash-out. Its cash limits and seasoning rules differ.
- State rules. Some states add their own requirements for cash-out loans. Your loan officer will flag those.
Where Borrowers Go Wrong
1. Assuming financed costs sit outside the cap. They don’t. They shrink your cash.
2. Treating “closing costs” and “cash to close” as one number. They’re separate lines on your disclosure.
3. Using stale leverage figures. Older guides cite an 85% FHA cash-out cap. That is out of date.
4. Expecting FHA insurance to cancel at 20% equity. PMI cancellation rules cover private mortgage insurance, not FHA premiums. FHA’s schedule runs on term and LTV.
5. Ignoring the new loan term. A cash-out resets the clock. A bigger balance on a fresh thirty-year term costs more in interest over time, even if the monthly figure looks manageable.
6. Skipping the comparison. Check your Loan Estimate against your Closing Disclosure, including cash to close and closing costs, and ask the lender to explain any big change.
Key Terms Defined
Cash-out refinance: a new mortgage larger than your current one, where the extra amount comes to you as cash.
Financed closing costs: fees added to the new loan balance instead of paid at the closing table.
Loan-to-value (LTV): the new loan balance as a percentage of the home’s appraised value.
Mortgage insurance: coverage that protects the lender. FHA charges an upfront and annual premium; conventional uses private mortgage insurance, generally only above 80% leverage.
Seasoning: the waiting period a program requires, such as how long you’ve owned the home or held the existing loan.
The Balanced Verdict
Neither loan wins on its own. They answer different borrowers.
If your credit sits in the lower range, your debt ratios are tight or you’re carrying a recent credit event past its waiting period, FHA cash-out is the realistic path. You accept the premiums as the cost of access.
If your score is strong and your ratios are clean, conventional cash-out usually costs less to carry over time, and you skip the FHA insurance layer.
In the middle, it’s a genuine toss-up. The better choice depends on how long you’ll keep the loan, how much cash you need after costs, and whether you could realistically refinance again later. Exiting FHA by moving to conventional later means a second set of closing costs, so that move needs its own break-even check.
Rolling in closing costs makes sense when you want to protect your savings and can live with a somewhat larger balance. Paying them from cash makes sense when you have the liquidity and want the highest net proceeds and the smallest balance.
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
Can I roll closing costs into an FHA cash-out refinance?
Yes, subject to lender guidelines. The financed costs, and the upfront premium, count toward the new loan amount, which must stay at or below 80% LTV. The more you finance, the less cash you receive.
Does rolling in closing costs reduce my cash out?
Yes, dollar for dollar on both loan types. Payoff, financed costs and your cash all share one capped amount. If you need a specific amount of cash, work backward from the appraised value and the cap to see whether the costs leave enough.
Does FHA mortgage insurance ever go away on a cash-out loan?
Sometimes. On a thirty-year loan at or below ninety percent LTV, which includes the FHA cash-out cap of 80%, the annual premium ends after eleven years. Loan terms and amounts change the schedule, so confirm it for your file. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Can I do an FHA cash-out on a home I just bought?
Usually not. FHA requires that you owned and occupied the home for 12 months before the case number. Conventional programs have narrow exceptions and a seasoning test on the existing first mortgage, so ask about both.
Is conventional cash-out always cheaper than FHA?
Not always. It often costs less to carry for a strong-credit borrower because there’s no FHA premium. A lower-score borrower may face pricing adjustments or stricter rules that change the picture. Compare full Loan Estimates side by side.
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. CFPB, Closing Disclosure explainer
2. HUD Handbook 4000.1, FHA Single Family Housing Policy Handbook
3. Fannie Mae Selling Guide, B2-1.3-03 Cash-Out Refinance Transactions
4. Fannie Mae Announcement SEL-2023-01
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 the FHA Cash-Out Loan Works for Borrowers Priced Out of Conventional · FHA Cash-Out Refinance vs Conventional Cash-Out With a Several-Month-Old Appraisal · How to Get an FHA Cash-Out When Conventional Costs Too Much
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.