The Quick Read: A lower score changes the cost of a cash-out refinance differently on each loan type. On FHA, the score mostly decides whether you are approved, and the mortgage insurance is built the same way at every score. On a conventional loan, a lower score mostly makes the loan itself more expensive. Both loans cap cash-out at about the same share of your home’s value, so the real fight is over cost structure, not how much you can borrow.
Here is the honest answer on who each loan is for. FHA fits the homeowner whose score is in the low-to-middle range, whose debts are a little heavy, or whose credit history has a scar or two. Conventional fits the homeowner whose score is solid enough that the lender isn’t charging a penalty for it. In between, it is a real toss-up, and the math depends on how long you will keep the loan.
If you want the FHA side in full detail, Lendmire’s FHA cash-out refinance program page walks through the mechanics. This article puts the two loans next to each other.
Key Terms Defined
You will see these terms throughout. Each one is defined once, here.
- Cash-out refinance: a new, larger mortgage that pays off your old one and hands you the difference in cash.
- LTV (loan-to-value): the loan balance divided by your home’s appraised value, shown as a percentage.
- Decision score: the single credit score a lender uses to judge an FHA file. It is the middle of three scores, or the lower of two.
- Upfront premium: a one-time FHA mortgage insurance charge, added to the loan balance instead of paid out of pocket.
- Annual premium: the ongoing FHA mortgage insurance charge, collected in monthly installments.
- PMI (private mortgage insurance): the insurance a conventional lender may require when you borrow above 80% of value.
- Loan-level price adjustment: a surcharge a conventional loan carries based on your score, your LTV and the loan’s purpose.
- Overlay: a lender’s own rule that is stricter than the program’s published minimum.
- DTI (debt-to-income ratio): your monthly debts as a share of your monthly gross income.
- Seasoning: how long you have owned the home, or held the current loan, before a refinance is allowed.
Side-by-Side
| Factor | FHA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Maximum LTV | 80% | Similar on a one-unit home; lower on other types |
| Credit floor | 580 on the programs Lendmire places | Set by the lender’s matrix; often higher for cash-out |
| Mortgage insurance | 1.75% upfront plus annual premium | PMI only above 80% LTV |
| Effect of a lower score | Mainly eligibility | Mainly a bigger loan-level adjustment |
| Ratios | 31/43 base; up to 40/50 with documented factors | Set by automated findings and the matrix |
| Occupancy | Principal residence only | Lower LTV for second homes and rentals |
| Ownership history | Owned and lived in for 12 months | Seasoning on the old loan and on title |
The table shows structure, not price. Prices belong on your Loan Estimate, which is the only place you will see your real numbers.
How a Lower Score Hits FHA
A lower score on FHA is mostly a yes-or-no question. Across the wholesale programs I place FHA files with, the floor starts at a 580 decision score. At or above that line, the cash-out limit is 80% of the home’s value. It is the same at 580 as at 740.
That surprises people. They hear “96.5% financing” and assume it applies here. It doesn’t. That figure, with its 3.5% minimum investment, belongs to purchases. Cash-out sits at 80% LTV for a home you have owned and lived in for 12 months before the case number is assigned. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
The rules behind the floor are public. HUD’s Mortgagee Letter 10-29 set the decision-score tiers. HUD has a lower tier for scores under 580, but the programs I work with don’t reach into it. HUD explained in a Federal Register notice that it drew the line there because loans with the lowest scores showed notably worse default and claim experience.
The cost side works differently. 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. HUD’s FHA premium page lays out the structure. Check HUD’s current premium table for your exact tier.
That is a program fact, not a price quote. The point is the shape. The premium schedule keys off term, amount and LTV. Your score is not one of the inputs.
Duration matters too. On a thirty-year loan above 90% LTV, the annual premium lasts for the term. At or below 90% LTV, it ends after eleven years. Since cash-out tops out at 80%, a thirty-year FHA cash-out falls in the second group. Subject to lender guidelines and HUD’s current schedule, that is a real difference from older advice that said FHA insurance never goes away.
How a Lower Score Hits Conventional
On a conventional loan, the score is a price lever. Fannie Mae’s loan-level price adjustment matrix sets surcharges by credit score band, LTV and loan purpose. Cash-out gets its own table and its own extra adjustments. The lowest score bands carry the largest surcharges, and the adjustments stack.
In plain English: a borrower in the low 600s on a conventional cash-out loan can pay noticeably more for the same loan than a borrower in the 740s. The surcharge doesn’t appear as a line item. It is folded into the loan’s terms, and your Loan Estimate shows the result. I won’t quote the matrix numbers here because they get revised, and the current table is the only one that counts.
There is a second hurdle. Conventional minimums for cash-out can run higher than for a purchase, and they live in Fannie Mae’s Eligibility Matrix. Add lender overlays and the practical floor is often above the published one.
The upside is the insurance. At or below 80% LTV, a conventional loan generally doesn’t carry PMI at all. And when PMI does apply, federal law gives you cancellation rights. FHA insurance has no such statutory exit, so refinancing may be your way out.
Conventional cash-out also has seasoning rules. Fannie Mae’s Selling Guide section on cash-out transactions requires the loan being paid off to be of a certain age and a borrower to have been on title for a set period. Fannie also requires added reserves for certain higher-DTI files run through its automated system.
A Worked Picture
Run the numbers on a homeowner with a score in the low 600s. Say the home appraises at a given value and the current loan balance equals 55% of it. Both loans cap at about 80%, so the maximum new loan is about 80% of value. That leaves roughly 25% of the home’s value to cover closing costs and put cash in your hand.
On FHA, the 1.75% upfront premium is financed. It either shrinks your net cash or adds to the balance. The annual premium is added to your monthly cost for as long as it applies.
On conventional, there is no upfront insurance charge at 80% LTV. But the surcharge for a lower score is built into the loan’s terms. The bigger that surcharge, the more it costs you every month for as long as you hold the loan. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
So the comparison comes down to two questions:
- Does the lender’s conventional offer at your score cost more over your holding period than FHA’s insurance plus its terms?
- Do you plan to hold the loan long enough for FHA insurance to run its course, or will you refinance sooner?
Neither loan wins on every file. It depends on how steep the score penalty is and how long you stay.
When FHA Is the Better Fit
FHA tends to be the better fit when the score is the main problem and the rest of the file is workable. Here is what points that way:
- A score in the low-to-middle range. If conventional is either unavailable or priced steeply at your score, FHA’s flat insurance structure can come out cheaper.
- Heavier debts. The base ratios are 31/43, and documented compensating factors can reach 40/50 at the top tier. Compensating factors might include reserves or a strong payment record. The automated finding governs most files.
- A past credit event. HUD’s waiting periods apply: two years from a Chapter 7 discharge and three years from a foreclosure. Those are HUD’s rules, not a promise from any lender. Conventional guidelines are generally stiffer after a major event.
- Limited traditional credit. HUD allows manual underwriting for borrowers with non-traditional or thin credit. Not every lender takes that path, but the option exists.
- A plan to refinance out later. If you expect your score to climb, FHA can be a bridge. Use it now, then move to conventional once your score and equity improve.
One caution. A program minimum is not an approval. Some lenders set a higher floor than the program does. That is the overlay problem, and it explains why one lender says no at a score where another says yes.
Also watch the payment history. A recent late mortgage payment can end FHA cash-out eligibility. And a new owner generally cannot cash out on FHA until the 12-month ownership and occupancy test is met.
FHA also has limits. It is for your principal residence only. County loan limits apply, and they change every year. If you have equity to spare and strong credit, the insurance is a cost you may not need to carry.
When Conventional Is the Better Fit
Conventional wins when your score is strong enough that the surcharge is small or absent. Consider it when:
- Your score is comfortably above the lender’s floor. The lower the surcharge, the better conventional looks.
- You’ll stay in the loan a long time. Without ongoing FHA insurance, a conventional loan at 80% LTV has fewer permanent add-ons.
- You want insurance you can cancel. If you ever borrow above 80%, PMI comes with statutory cancellation rights. The Consumer Financial Protection Bureau explains them for loans on principal residences.
- Your file is clean on the details. A steady payment history, a moderate DTI and some reserves make the automated system friendlier. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Conventional works against you when the score drops or when the home isn’t a one-unit primary residence. Leverage falls for multi-unit homes and second homes. If the property is a rental, occupancy decides the leverage, and that is a different conversation.
For more on how insurance costs change as your equity changes, see Lendmire’s how much FHA cash-out insurance costs versus conventional by equity.
Wait or Proceed? A Short Checklist
Sometimes a more affordable move is to wait. Run through this list:
1. Is your score trending up? Paying down card balances before the credit pull can lift it. If a few months of work moves you into a better band, waiting can pay off.
2. Is the cash urgent? A looming bill changes the math. Waiting only helps if the need can wait.
3. How long will you hold the loan? A short hold favors the loan with the lower upfront cost. A long hold favors the lower ongoing cost.
4. Will you refinance again? If you plan to move from FHA to conventional later, factor in a second round of closing costs.
5. Do you need cash at all? If you’re only chasing a different term, a different refinance type may fit better than cash-out.
The research on cash-out use is sobering. The CFPB found paying down other debt is a common use of cash-out funds, and it notes that swapping non-mortgage debt for mortgage debt can raise foreclosure risk. The CFPB paper on cash-out refinances is worth a read before you commit. For a closer look at that exact use, Lendmire’s piece FHA Cash-Out vs Conventional Cash-Out to Pay Off Credit Cards covers the tradeoffs.
Where Borrowers Get It Wrong
A few misreadings show up again and again.
“A 580 score gets me 96.5% on cash-out.” No. That figure is for purchases. Cash-out stops at 80%.
“FHA ignores credit.” It doesn’t. There are score tiers, payment-history rules and a documentation review.
“FHA mortgage insurance is the same as PMI.” Not quite. FHA has an upfront premium plus an annual premium. PMI has legal cancellation rights.
“A ‘no-closing-cost’ refinance is free.” It isn’t. The costs are built into the loan’s terms or added to the balance. Whatever you are quoted, compare the Loan Estimates side by side.
“The program minimum is my floor.” Lenders can add overlays, so the practical minimum may be higher.
One more point from the files I see. Borrowers often compare the headline terms of two quotes and miss the insurance. Put both loans on the same page, with the same cash-out amount and the same holding period, before you decide. Every loan Lendmire arranges comes with a Loan Estimate and, later, a Closing Disclosure. Those documents show real costs, not estimates from an article.
A Balanced Verdict
Neither loan is “cheaper” in the abstract. At a lower score, FHA often makes the approval easier and the insurance structure more predictable. Conventional can cost less once your score is strong enough to avoid a large surcharge, and its insurance, when it applies, is removable by law.
The decision usually comes down to three things: where your score sits against the lender’s real floor, how long you will hold the loan, and how much equity you are willing to tap. At 80% LTV, both loans reach about the same amount. So the better question is which one costs less to carry for the time you’ll keep 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 program detail here is subject to lender guidelines and a full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
Is FHA cash-out always cheaper at a lower score?
No. FHA is often easier to qualify for, but the insurance adds cost in two forms: the upfront premium and the annual premium. A conventional loan at a lower score carries a bigger surcharge but no upfront insurance charge at 80% LTV. The cheaper loan depends on your score band, how long you hold the loan and the offers you actually receive.
Does a higher credit score raise my FHA cash-out limit?
No. The cash-out limit is 80% LTV at every score tier the programs reach. A higher score may help you clear a lender’s overlay and can improve how the file reads, but it doesn’t push the limit beyond 80%. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Does FHA mortgage insurance ever go away?
Sometimes. A cash-out loan sits at 80% or below, so the shorter schedule generally applies, subject to HUD’s current rules. Refinancing into another loan is the other way out.
Why would a lender need a higher score than the program minimum?
Lenders can set overlays, which are stricter rules than the program requires. The program floor tells you what the rules permit. It doesn’t tell you what any one lender will accept. That is one reason a broker who works with several wholesale lenders can sometimes find a fit where a single bank says no.
Can I cash out on a home I don’t live in?
FHA cash-out is for your principal residence only. Conventional cash-out may allow other occupancy types, but leverage drops for second homes and rentals. Occupancy decides how much you can borrow.
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.
For current guidelines, see FHA loan programs.
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References
2. Federal Register notice on FHA credit scores
3. HUD FHA mortgage insurance premium structure
4. Fannie Mae loan-level price adjustment matrix
6. Fannie Mae Selling Guide, cash-out refinance transactions
8. CFPB paper on cash-out refinances
This article is part of Lendmire’s FHA Loan series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Is an FHA Cash-Out Easier to Qualify for Than a Conventional Cash-Out? · Can You Get an FHA Cash-Out After a Conventional Denial? · FHA Cash-Out vs Conventional Cash-Out to Pay Off Credit Cards
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
Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.