The Quick Read: FHA and conventional cash-out refinances on the home you live in differ most in three places: how long you must have owned the home, how credit and debt ratios are judged, and how mortgage insurance is charged. On a one-unit home, both cap leverage in roughly the same range, so the ceiling rarely decides the winner. Your seasoning history, your credit profile and the total cost of the insurance usually do. Every figure here is subject to lender guidelines and a full file review.
Key Takeaways
- FHA cash-out tops out at 80% of the home’s appraised value. Conventional lands in a similar range on a one-unit home and lower on two to four units.
- FHA asks for 12 months of ownership and occupancy. Conventional runs two separate clocks, one on the loan and one on the title.
- FHA charges an upfront premium of 1.75% plus an annual premium. Conventional can carry private mortgage insurance and credit-based pricing adjustments.
- FHA is often the easier path for a score in the 580s or 600s. Conventional often wins when credit is strong and equity is high.
- Compare total cost on each path, not just the maximum loan.
Cash-Out Requirements Side by Side: The Table
Here is the master view for a primary residence. Details and exceptions follow in the sections below.
| Factor | FHA cash-out | Conventional cash-out |
|---|---|---|
| Maximum leverage | 80% of appraised value | Similar on one unit; lower on 2-4 units |
| Occupancy | Owner-occupied primary home only | Primary, second home or rental at differing leverage |
| Ownership clock | 12 months owned and occupied | 6 months on title |
| Loan-age clock | Payment history on the old loan reviewed | Old first mortgage at least 12 months old |
| Credit | Starts at a 580 decision score through our lenders | Lender-set floor; pricing tied to score |
| Debt ratios | 31/43 base; up to 40/50 with factors | Automated findings; reserves can apply at higher DTI |
| Mortgage insurance | 1.75% upfront plus annual premium | PMI possible; cost varies by credit and equity |
| Loan limits | County limits apply | Conforming limits apply |
| Best fit | Bruised credit, thinner profile | Strong credit, solid equity |
Treat the table as a map, not a promise. Lenders can add stricter rules on top of the program minimums, and those add-ons are called overlays.
What a Cash-Out Refinance Does on Your Home
A cash-out refinance replaces your current first mortgage with a new, larger one. The new loan pays off the old balance and the closing costs. You keep the difference as cash.
The size of that difference comes down to three things: the appraised value, the leverage cap and what you owe. Cash-out is not a second loan sitting on top of the first. It is one new first mortgage, so the new terms apply to your entire balance.
Lendmire’s FHA cash-out refinance program is one version of this structure. The conventional version works the same way mechanically. What changes is who insures the loan and which tests you must pass.
One note on occupancy. FHA cash-out is for the home you live in. Conventional rules allow second homes and rentals, but at lower leverage. This article stays on the primary home.
How Much Can You Borrow? Leverage Compared
FHA caps cash-out at 80% of the appraised value. That was not always the number. HUD’s Mortgagee Letter 2019-11 cut the limit from 85% to 80%, saying the change was meant to reduce risk to the FHA insurance fund. Some older web pages still show 85%, so rely on current HUD guidance instead. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Conventional leverage on a one-unit primary home sits in a similar range. Two-to-four-unit homes get a lower cap. The exact conventional ceiling lives in the agency’s eligibility matrix, so confirm it with your lender before you plan around a number.
Here is what that means in practice. The cap is a ceiling, not a promise. Hitting 80% does not earn an approval. Credit, income, payment history and occupancy proof all decide the outcome, and the appraisal sets the starting point for everything.
Loan limits work differently from leverage. FHA limits are set by county and change every year, so county loan limits apply to your property. Conforming conventional loans have their own limits. A high-priced home can run into either ceiling before it reaches 80%.
Seasoning: Three Clocks, Not One
Seasoning is the waiting period a lender wants before you can refinance or take cash out. Most pages treat it as one rule. It is really several clocks, and each program starts them at different moments.
FHA runs one main clock. At least one borrower must have owned and lived in the home for the 12 months before the case number was assigned. The case number is the file ID the lender requests from FHA at the start. Lenders verify occupancy with documents such as employment records or utility bills. They also review the payment history on the loan being paid off.
Conventional runs two clocks. Under the Fannie Mae Selling Guide, the existing first mortgage must be at least 12 months old. That is measured from the old note date to the new note date. Separately, at least one borrower must have been on title for six months before the new loan disburses.
The two clocks are independent. You can pass one and fail the other. Picture someone who bought a home three years ago, refinanced eight months ago, and now wants cash. The title clock is long past, but the loan-age clock is not.
The conventional test has a few carve-outs. The 12-month rule does not apply to second liens being paid off, or when you buy out a co-owner under a legal agreement. Neither carve-out waives the credit, income or appraisal review.
Credit and Debt Ratios
FHA is built for borrowers whose credit is not perfect. Across the wholesale programs Lendmire places FHA files with, the floor starts at a 580 decision score. HUD itself publishes a lower tier, but the lenders in this network do not reach below 580. Some lenders set a higher floor for cash-out, which is why two borrowers with the same score can get different answers.
Debt-to-income ratio, or DTI, compares your monthly debts to your monthly income. FHA reads it as a pair: housing cost over total debt. The base pair is 31/43 with no compensating factors. Documented strengths such as cash reserves or a strong payment record can stretch the pair to 40/50 at the top tier. The automated underwriting finding governs most files.
Conventional is more sensitive to score. A higher score can mean cheaper pricing adjustments and lower mortgage insurance cost. The Selling Guide also ties reserves to DTI: on loans run through Desktop Underwriter with DTI above 45%, six months of reserves are required. Reserves are cash left over after closing, counted in months of housing payments.
Neither program has one universal credit minimum that every lender uses. Treat any single number you read online, including the ones here, as a starting point. The lender’s overlay and your full file make the call.
Mortgage Insurance Side by Side
Mortgage insurance is where most of the cost difference lives, so it deserves a close look.
FHA has two pieces. The upfront premium is 1.75% of the base loan, and borrowers typically finance it into the balance. HUD’s Mortgagee Letter 2023-05 confirms that figure and lists the narrow exceptions, which cover certain streamline refinances of older FHA loans. Cash-out is not one of the exceptions.
The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and leverage. It is collected monthly. On a thirty-year loan above 90% leverage, it lasts for the full term. At or below 90%, it ends after eleven years. Since FHA cash-out stops at 80%, that eleven-year rule is the one that applies. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Conventional works differently. Private mortgage insurance, or PMI, is a policy that protects the lender when your equity is thin. Its cost depends on your credit score and your equity. On top of that, cash-out loans carry loan-level price adjustments, which are fees built from your score and leverage. Those adjustments are part of the conventional cash-out rules.
The right comparison is total cost, not the headline cap. Lendmire’s piece How Much FHA Cash-Out Insurance Costs Versus Conventional by Equity walks through that tradeoff in more detail.
Two common mix-ups. First, FHA mortgage insurance is not the same thing as PMI. They work under different rules, so the cancellation logic is different too. Second, an FHA streamline is not a cash-out. Streamlines have their own rules and a different premium treatment.
A Worked Comparison
Run the numbers on a hypothetical homeowner. These are modeled assumptions, not market data. Say the home appraises at 100% of value, and the current mortgage balance equals 60% of that value. The homeowner has owned and lived there for several years, and the existing loan is well past 12 months old.
Both programs allow roughly 80% on a one-unit home. That leaves about 20 percentage points of the home’s value to cover closing costs, prepaids and any premium financed into the balance. Whatever remains is the cash to you.
Now the two paths split.
- FHA path: The 1.75% upfront premium is calculated on the base loan and financed in, which eats part of that 20-point cushion. An annual premium follows for eleven years at this leverage. The decision score and DTI pair determine approval.
- Conventional path: There is no flat upfront premium. Instead, PMI and price adjustments depend on the score. A borrower with a high score may find this path leaves more cash and a lower monthly cost. A borrower with a mid-range score may find the opposite.
The point is simple. Same home, same balance and same cash goal can produce different costs on each path. Lenders must give you a Loan Estimate for each option. Put them side by side and compare the full terms.
Where the General Rule Breaks
Rules have exceptions, and a few edge cases catch people off guard.
You inherited the home. FHA guidelines carve out inheritance: no minimum occupancy period applies if you never treated the property as an investment. If you rent it out after inheriting, the 12-month occupancy clock applies before you can take cash out.
You bought with cash recently. Conventional has a delayed financing exception. It lets you take cash out inside the six-month title window. It still requires a documented source of funds and a full credit, income and appraisal review.
You are buying out a co-owner or ex-spouse. Conventional exempts this from the 12-month loan-age test when a legal agreement backs it.
You want to pay off a second lien. On conventional, subordinate liens are exempt from the 12-month test. A new second lien taken at the same time is generally treated as limited cash-out if the first mortgage qualifies.
You really want a limited cash-out. This is a separate conventional category. A limited cash-out refinance pays off the old loan and costs without giving you meaningful cash. Under the limited cash-out rules, there is no 12-month seasoning test, and leverage can run much higher on a primary home. Do not call a payoff-plus-costs refinance “cash-out.” The pricing and rules differ.
Your home is manufactured. FHA requires the home be permanently installed on its site for more than 12 months. Conventional manufactured-home cash-out generally carries a lower leverage cap.
Your home is listed for sale. Conventional requires it to be off the market by the disbursement date.
You have a recent credit event. HUD sets waiting periods for FHA: two years from a Chapter 7 discharge and three years from a foreclosure. Those are HUD’s rules, and lenders may add their own.
Choosing Between Them: A Practical Decision Path
Start with the clocks. FHA cash-out generally requires that you have lived in the home for a minimum period, so if you have not met that occupancy requirement, it is not available to you for now. Conventional cash-out typically looks at how long you have held your current first mortgage, so if that loan is still new, it may not be available either. If both are true, the answer is to wait or look at other structures.
Then look at credit. A score in the 580s or low 600s usually points toward FHA. A high score points toward conventional, because the pricing and PMI can come out lower.
Then look at equity. At or near the 80% line, both programs get tight. With plenty of equity, conventional’s insurance cost can be modest or nonexistent. With less equity, FHA’s flat structure can be easier to predict.
Think through this one out loud. The stronger play for a mid-score borrower is often FHA now and a refinance later, once the score and equity improve. Someone with strong credit can argue the other way: start conventional and avoid the FHA premium entirely. It is a genuine toss-up that depends on how long you plan to keep the loan.
Choose FHA when:
- Your credit sits in the lower tiers and a conventional score tier would push the cost up.
- Your DTI is high but you have documented compensating factors.
- You want predictable insurance mechanics.
Choose conventional when:
- Your credit is strong and pricing adjustments are small.
- You want the insurance to stay off the books once equity grows.
- You own a two-to-four-unit home, a manufactured home or a house you may rent later, and want broader eligibility.
A last point on switching. If you take FHA now and want out of the insurance later, a refinance into conventional is the usual exit. It generally needs stronger credit, lower DTI and enough equity to avoid PMI. That exit path is worth planning before you sign.
Using the Cash: What the Data Says
Standard FHA cash-out comes with no restrictions on how the proceeds are used. Conventional’s student-loan cash-out option is the exception, and it has narrow rules.
The federal consumer agency has data on how borrowers use the money. In a CFPB report on cash-out borrowers, paying off other bills or debts was the most common reason in every year of the survey, topping 50% in most of them. Home repairs or new construction ranked second.
The same agency warns about the tradeoff. Moving unsecured debt into mortgage debt can put the home at risk, because you cannot lose your house over a missed credit card payment but you can over a missed mortgage payment. The report also found credit scores rose after the refinance and then slipped, though they stayed above where they began. Weigh that before you roll other debts into the new balance.
Key Terms Defined
Cash-out refinance: A new, larger first mortgage that pays off your old loan and gives you the difference in cash.
LTV (loan-to-value): The loan balance divided by the home’s appraised value, shown as a percentage.
Seasoning: The waiting period a lender requires before you can refinance or take cash out, such as time on title or the age of your existing loan.
UFMIP and annual MIP: FHA’s upfront mortgage insurance premium, charged once and usually financed, and its annual premium, collected monthly.
PMI: Private mortgage insurance on conventional loans, priced by your credit score and equity.
DTI (debt-to-income): Your monthly debt payments divided by your gross monthly income.
Overlay: A rule a lender adds on top of the program minimums.
Your Next Step
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. As a mortgage broker, Lendmire arranges these loans through wholesale lenders, and every program detail is subject to lender guidelines and full file review. Nothing here is a commitment to lend. For a conventional-side primer, see Lendmire’s explanation of how a conventional cash-out refinance is defined for a primary home.
Frequently Asked Questions
Do I need an existing FHA loan to get an FHA cash-out refinance?
No. You can refinance out of a conventional or other loan type into FHA, as long as you meet the ownership, occupancy and credit tests. The mortgage insurance applies either way. What matters is that the home is your primary residence and you have lived there the required 12 months.
Can I take cash out of a home with no mortgage?
Often yes. Conventional rules allow a new first mortgage on a property with no mortgage lien, and the title clock still applies. A paid-off home is not exempt from seasoning. FHA applies its 12-month ownership and occupancy test no matter what you owe, and a lender will review your documents either way.
Can I get rid of FHA mortgage insurance later?
Mostly by refinancing. At or below 90% leverage, the annual premium on a thirty-year loan ends after eleven years. Before that, the usual exit is a refinance into a conventional loan, which generally needs stronger credit, lower DTI and enough equity to avoid or limit PMI.
Which is cheaper over time, FHA or conventional?
It depends on your credit score and equity. FHA’s cost is a flat upfront premium plus an annual premium. Conventional’s cost swings with your score, so strong credit tends to favor conventional and weaker credit tends to favor FHA. Ask for a Loan Estimate on each path and compare total cost over the years you expect to keep the loan.
I bought my home less than a year ago. Can I still take cash out?
Usually not on FHA, since the 12-month ownership and occupancy test comes first. On conventional, the six-month title clock is easier to meet, but the existing first mortgage must be at least 12 months old. A cash purchase may qualify for the delayed financing exception.
For your own numbers, request a scenario review with Lendmire.
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.
For the program’s current guidelines, see FHA loan programs.
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References
1. HUD Mortgagee Letter 2019-11
2. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
3. HUD Mortgagee Letter 2023-05
4. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance Transactions
5. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
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: FHA Cash-Out vs Conventional Cash-Out to Pay Off Credit Cards · Can a Texas Homeowner Get an FHA Cash-Out Refinance? · FHA Cash-Out Appraisal Requirements for Value and Repairs
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.