The Quick Read: It depends on your credit, your equity, and how long you plan to keep the new loan. Current FHA borrowers are not locked into FHA, and conventional often wins when credit is strong and the existing loan is at least a year old. FHA cash-out tends to fit borrowers whose credit or debt ratios would stall a conventional file. Both products replace your current mortgage, and both cap out near 80% of the home’s value on a one-unit primary residence, so the real contest is mortgage insurance, credit flexibility, and timing.
Do You Have to Stay With FHA?
No. An FHA cash-out refinance does not require an existing FHA loan, and a conventional cash-out does not require that you leave FHA behind. You are choosing between two ways to replace the mortgage you have now.
A cash-out refinance pays off your current first mortgage and gives you a new, larger one. The difference comes to you as cash. That is different from a home equity loan or HELOC, which leaves your first mortgage alone and adds a second lien. If your current loan carries terms you value, a second lien is a third option worth pricing before you decide.
Across the wholesale programs Lendmire places files with, the FHA cash-out reaches 80% loan-to-value on a home you have owned and occupied for 12 months before the case number is assigned. Conventional reaches the same 80% on a one-unit primary residence. Cash-out sizing is no longer where FHA has an edge, a point the next section explains.
Is the Leverage Really the Same?
Yes, on a one-unit primary residence. Older advice said FHA lets you borrow more equity, and that was true once. HUD lowered the FHA cash-out cap to 80% loan-to-value and combined loan-to-value, which the HUD Handbook 4000.1 transmittal records. Fannie Mae’s eligibility matrix lists 80% for a one-unit principal residence, so the two ceilings line up.
Unit count changes the picture. Fannie Mae’s cap drops to 75% on a two- to four-unit owner-occupied home, while FHA keeps its 80% cap for an owner-occupied one- to four-unit home under the program rules the network works with. If you live in one unit of a small multifamily, FHA may reach further. Verify the current matrix with your loan officer, because agency limits get revised.
Manufactured homes run differently. FHA looks for a home permanently installed on a site for more than 12 months. Conventional guidelines generally allow much lower leverage on a manufactured principal residence. And if the property is a second home or a rental, FHA cash-out is not available at all, because the program requires a principal residence.
Where the Two Products Differ
Mortgage insurance is the largest difference, followed by credit flexibility and seasoning. Here is the side-by-side.
| Factor | FHA cash-out | Conventional cash-out |
|---|---|---|
| Max financing, one unit | 80% LTV | 80% LTV |
| Mortgage insurance | Upfront plus annual premium | Often none at or under 80% |
| Credit flexibility | Generally more flexible | Generally higher score needed |
| Ratios | 31/43 base, up to 40/50 with factors | Driven by automated findings |
| Existing loan age | 12 months owned and occupied | Existing mortgage at least 12 months old |
| Occupancy | Principal residence only | Primary, second home, rental |
Treat the table as a map, not a quote. Each lender sets its own overlays, and every figure is subject to lender guidelines and full file review.
What Happens to the Mortgage Insurance You Already Pay?
Refinancing replaces it, and that is usually the heart of the decision. FHA mortgage insurance has two parts. The upfront premium is 1.75% of the base loan, and it is typically financed into the balance. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount, and LTV.
Duration matters more than the percentage. On a thirty-year loan above 90% LTV, the annual premium lasts for the life of the loan. At or below 90%, it ends after eleven years. A cash-out at 80% LTV lands below that line, so the premium would end after eleven years on a new FHA loan. That is a real improvement over lifetime insurance, but eleven years is still a long stretch. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Older FHA loans are the wrinkle. Loans endorsed before June 2013 may follow different cancellation rules, so the idea that you are stuck with insurance may not apply to you. HUD’s superseded policy list shows the Mortgagee Letter that changed this. Ask your servicer which rule governs your loan before assuming anything.
Now the conventional side. A conventional cash-out at or under 80% LTV usually carries no private mortgage insurance. Where it does apply, federal law gives you cancellation rights. The CFPB explains that you can request removal at 80% of the original value and that the lender must terminate it automatically at 78%. FHA premiums do not follow those rules on most recent loans.
One more point on timing. When you refinance out of a recent FHA loan, a partial refund of the upfront premium may apply. The schedule depends on how long you held the loan. Confirm it with HUD or your servicer before you count on it, and treat it as a small offset rather than a reason to refinance.
When Conventional Cash-Out Is the Stronger Play
Conventional tends to win when four things line up. Your credit is solid, your equity leaves you at or under 80%, your FHA loan is at least 12 months old, and you plan to keep the new loan for years.
Under Fannie Mae’s Selling Guide, the mortgage being paid off must be at least 12 months old. That note-age rule is separate from how long you have owned the home. The guide’s delayed financing exception is for recent cash purchases, so it does not help someone with an existing FHA mortgage.
Picture a homeowner with a strong credit profile who has held an FHA loan for several years, with comfortable equity. Dropping the annual FHA premium could trim the carrying cost, and an 80% conventional cash-out may avoid private mortgage insurance altogether. The longer that homeowner stays put, the more the avoided insurance adds up. The caution: conventional loans can carry price adjustments based on credit and leverage, and the new pricing may offset the insurance savings. Compare both on a Loan Estimate, not on assumptions.
Here is the break-even test in plain words. Add up the closing costs of the new loan. Estimate the monthly insurance you would stop paying. Then ask how many months of savings it takes to cover those costs. If you expect to sell or refinance again before that point, conventional loses its edge.
When FHA Cash-Out Still Makes Sense
FHA is the better fit when credit or debt-to-income would hold a conventional file back. The base ratio pair is 31/43 for housing and total debt, and documented compensating factors can stretch toward 40/50 at the top tier. Wholesale FHA programs the network works with begin at a 580 decision score. Conventional lenders generally want higher scores, and their reserve requirements can climb with the debt ratio.
Say a borrower has a thinner credit file after a rough patch, carries real monthly obligations, and has solid equity. Conventional may not fit, or it may price so high that the savings disappear. FHA, with its flexibility, may be the only cash-out route that works. The tradeoff is the insurance premium that comes with it.
Occupancy and unit count can also tip it. A borrower living in a multi-unit home above conventional’s lower cap may find FHA reaches further. Credit events matter too. HUD’s waiting periods are two years from a Chapter 7 discharge and three years from a foreclosure, and those are HUD rules rather than a promise from any lender.
The Seasoning Traps for Existing Borrowers
Both paths ask about time, but in different ways. FHA cash-out requires at least one borrower to have owned and occupied the home as a principal residence for the 12 months before the case number. It also looks at payment history, generally expecting your mortgage payments to have been made within the month due over the prior 12 months. Conventional focuses on the age of the mortgage being paid off.
Here is a quick walk through the edge cases.
- FHA loan under 12 months old: Conventional cash-out is generally blocked by the note-age rule. FHA cash-out also needs the 12-month ownership and occupancy history.
- Inherited home: FHA may waive the occupancy period if the property was never treated as an investment. If you rented it after inheriting, the 12 months applies.
- Late payments: Recent delinquencies can end the conversation on either path. Some lenders add stricter overlays than the agency requires.
- Non-occupant co-borrowers: Some lenders exclude them on FHA cash-out. That is typically a lender overlay, not necessarily HUD policy, so ask before you assume.
Your appraisal drives everything. Both caps apply to appraised value, so a lower value shrinks the cash you can take, and a file that looked fine on an online estimate can fall short.
FHA Streamline: A Different Tool
The FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review, but it requires a net tangible benefit and gives you no cash. The insurance premium continues. It is the right tool if you only want to adjust terms. If you want cash, you are back to the choice above.
Many existing borrowers also overlook the FHA rate-and-term refinance with an appraisal, which reaches 97.75% on a principal residence occupied for the previous twelve months. If the real goal is a better structure and not cash, that option keeps leverage high without pulling equity out.
The Two-Step Trap
Taking FHA cash-out now and moving to conventional later means paying closing costs twice. That can make sense if your credit is improving on a clear path and you need the cash today. It rarely makes sense if you are only hoping credit improves. Each refinance restarts seasoning, and both moves reset your balance and term.
A cleaner approach is to decide the holding period first. Plan to stay five years or fewer, and a single FHA move may be cheaper than waiting. Plan to stay ten or more, and holding out for conventional may save more over time. Honestly, this one is a toss-up for many borrowers. Get both quotes before choosing.
Using the Cash for Debt
Consolidating debt with a cash-out turns unsecured balances into debt secured by your home. CFPB research notes this puts the home at risk if payments become unsustainable, and that closing costs can be substantial. Cash-out loans are usually repaid over 30 years, so a card balance you could have cleared in a few years may be stretched across decades, raising the total cost even if the monthly payment drops.
The same CFPB work finds borrowers’ credit scores often rise after a cash-out and then drift back down, though they stay above pre-refinance levels. The pattern points to the habit risk. If the cards fill up again, you carry both the new mortgage and new balances.
Common Myths
- “FHA lets me borrow more equity.” Not on a one-unit primary residence anymore. Both sit at 80%.
- “My FHA insurance drops off at 80% LTV.” Conventional insurance follows that rule. FHA premiums generally do not.
- “Eligible equity means approval.” Lenders also review credit, income, payment history, and the new payment.
- “FHA mortgage insurance and PMI are the same.” They are different products under different rules.
- “I can refinance a recent FHA loan right away.” The 12-month note-age rule can block conventional.
Key Terms Defined
Cash-out refinance: A new, larger mortgage that pays off your current one and hands you the difference in cash.
LTV (loan-to-value): The loan balance divided by the home’s appraised value.
CLTV: The base loan plus any other liens, divided by the home’s adjusted value.
Mortgage insurance premium (MIP): FHA’s insurance, with an upfront charge and an annual charge.
Seasoning: The minimum time you must have owned the home or held a loan before refinancing.
Net tangible benefit: A measurable gain the borrower must receive from certain FHA refinances.
How to Compare Quotes
Ask each lender for a Loan Estimate on both products using the same cash amount and the same appraised value. Then compare four things: the cash you net after payoff and costs, the monthly insurance on each, the closing costs, and the break-even month. Because consumer loans follow Loan Estimate and Closing Disclosure rules, the numbers are comparable line by line.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Frequently Asked Questions
Can I use conventional cash-out if I have an FHA loan today?
Yes, provided the FHA loan is at least 12 months old and you meet conventional credit, equity, and reserve standards. The new loan pays off the FHA mortgage entirely. That ends the FHA insurance, though conventional pricing may carry its own adjustments.
Does refinancing out of FHA always remove mortgage insurance?
No. A conventional cash-out at or under 80% LTV usually carries no private mortgage insurance, but pricing, credit, and leverage can change that. If PMI applies, you hold cancellation rights at 80% and automatic termination at 78%. A new FHA loan brings a fresh upfront and annual premium.
Can I get more cash from FHA than from conventional?
Not on a one-unit primary residence, where both reach 80%. On a two- to four-unit owner-occupied home, FHA may reach further than conventional’s lower cap. Your appraisal and ratios also limit the cash you can take, whichever product you choose.
What if my FHA loan is only a few months old?
Conventional is generally blocked until the mortgage is 12 months old. FHA cash-out also needs 12 months of ownership and occupancy. Until then, a Streamline or waiting may be your realistic options, and the right choice depends on your goal.
Is a second lien better than refinancing out of my FHA loan?
It can be, if your current mortgage terms are worth keeping. A home equity loan or HELOC leaves the first mortgage in place and adds a second payment. A cash-out replaces everything. Compare the total cost of both over the time you plan to stay.
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, starting with its FHA cash-out refinance program. 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.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Handbook 4000.1 transmittal
2. HUD superseded single family policy documents
3. CFPB: When can I remove private mortgage insurance?
4. Fannie Mae Selling Guide B2-1.3-03
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: Can You Get an FHA Cash-Out After a Conventional Denial? · Is an FHA Cash-Out Easier to Qualify for Than a Conventional Cash-Out? · Conventional vs FHA Cash-Out for a Homeowner Based on Credit and DTI
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.