The Quick Read: Not on equity, sometimes on credit, and it does not get you out of FHA. An FHA cash-out replaces your current loan with a new FHA loan, so FHA mortgage insurance stays in your payment. Both programs cap cash-out leverage at the same 80% of the home’s value. A conventional refinance is the move that pays off the FHA loan and ends FHA’s insurance on it, subject to lender guidelines and full file review.
What “Easier” Actually Means
Easier can mean three different things, and FHA only wins on some of them.
- Equity: Same hurdle on both. You need roughly 20% equity left after the new loan.
- Credit tolerance and debt ratios: FHA can be more forgiving here. The automated underwriting finding and each lender’s own overlays decide how much.
- Timing and payment history: FHA is stricter.
Across the wholesale programs Lendmire places FHA files with, the pattern is consistent. Borrowers who ask “which is easier?” are usually asking about credit. Borrowers who should be asking “which is cheaper to keep?” are usually asking about insurance. Those are different questions with different answers.
How an FHA Cash-Out Works
An FHA cash-out refinance is a new FHA-insured first mortgage that pays off your existing loan and puts the leftover equity in your hands. The proceeds are not limited to specific purposes. You do not need an FHA loan today to use it, but you do need to have owned and lived in the home for 12 months before the case number is assigned.
The leverage ceiling is 80% LTV. HUD lowered it for case numbers assigned on or after September 1, 2019, and the HUD Handbook 4000.1 Update 7.5 transmittal records the change. Older web pages still show a higher ceiling. Ignore them. Leverage, reserves, and other terms vary by lender and program; the final terms follow the full file review.
Details that matter:
- Combined LTV counts. A second mortgage or HELOC that stays on the home uses up part of the 80%.
- The appraisal sets the ceiling. A low value shrinks the cash available.
- The 580 credit tier. The wholesale programs Lendmire places FHA loans with start at a 580 decision score, though individual lenders may set higher floors.
- Ratios. The base pair is 31/43 (housing to total debt). Documented compensating factors can stretch it as far as 40/50 at the top tier, and the automated finding governs most files.
The mechanics of the program are covered on Lendmire’s FHA cash-out refinance program page.
Where FHA Is Stricter Than Conventional
Payment history is the catch. HUD’s guidelines look for on-time payments on all mortgages for the prior 12 months, and the month before disbursement matters too. HUD Mortgagee Letter 2020-30 says a cash-out file with a current mortgage delinquency, or any within 12 months of case number assignment, is downgraded to a Refer and manually underwritten. It also covers forbearance: for a cash-out, the borrower must have finished the plan and made at least 12 consecutive payments afterward.
Conventional mortgage-history rules vary more by lender overlay. That can make conventional workable for a borrower with a recent slip, though a lender may still look hard at it.
Occupancy is the other tight spot. FHA cash-out is for your principal residence only. If the home is a second home or a rental, conventional is the lane, and its leverage caps are lower. Occupancy decides the leverage.
Easier to Get vs. Cheaper to Keep
This is the question that decides most files. Approval flexibility and ownership cost point in different directions.
An FHA loan carries two mortgage insurance pieces. There is an upfront premium of 1.75% of the base loan, typically financed. There is also an annual premium that runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. HUD’s announcement of the 2023 reduction (from 0.85% to 0.55% for most new borrowers) shows how the annual premium works: it is paid in 12 monthly installments inside your payment. The cut lowered the premium. It did not remove it.
A conventional cash-out at or below 80% generally avoids borrower-paid mortgage insurance. It can carry loan-level pricing adjustments instead, which are costs built into the loan’s pricing. So a borrower with strong credit and real equity often comes out cheaper on conventional, even if FHA was easier to get.
A borrower with thin credit may not have that choice. For them FHA’s flexibility is the whole point.
If You Are Already in an FHA Loan
Here is the core of the title question. A new FHA cash-out is a new FHA loan. The insurance never leaves.
How FHA mortgage insurance ends:
| Path | What happens to FHA insurance |
|---|---|
| Keep the loan | Ends after 11 years if LTV was 90% or lower at origination |
| FHA cash-out | New FHA loan, new premiums, clock restarts |
| Conventional refinance | FHA loan is paid off, so its insurance ends |
| Request removal | Not available on FHA |
The Congressional Research Service summary of FHA loans describes the 11-year rule for loans at or below 90% LTV at origination. A cash-out at the 80% cap would fall in that group. The loan is new, so the 11 years start over. That follows from the rule and the cap rather than from a single HUD statement. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Fannie Mae’s consumer page says removing FHA insurance is more complicated and may involve refinancing. Conventional private mortgage insurance is different. Under the CFPB’s explanation, you can request cancellation when the balance is scheduled to reach 80% of original value, and it ends automatically at 78% if you are current. Those protections cover conventional loans, not FHA.
The upfront FHA premium is generally not refunded when you leave through a conventional refinance. Certain FHA streamlines are the documented exception. Weigh that as a sunk cost.
For a break-even test, skip dollar math and think in terms of time. Compare what you save each month by dropping FHA insurance against what the new loan’s closing costs total. Divide one by the other. If you expect to keep the home longer than that number of months, leaving pays. If a move is close, it may not.
Three Borrower Profiles
Run these through your own numbers.
Credit improved, equity grew. Say you bought with a 580-range score and a minimum investment of 3.5%, and now your score is solid and the home has appreciated. Staying under 80% LTV is realistic. Conventional cash-out is the stronger structure: the cash comes out and FHA insurance goes away. This is the profile the “get out of FHA” goal fits best. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Thin equity. Suppose a new loan plus cash-out would land above 80% on the appraised value. Neither program works at that leverage. The question changes from “which is easier” to “can I wait or pay down first.”
Credit slipped. If a recent late payment sits in the last 12 months, FHA cash-out sends the file to manual review, or may not fit at all. Conventional might accept it under a lender’s own overlay. A cash-out may be the wrong tool, and an FHA streamline or no-cash-out refinance is worth a look if you only want a different loan term.
Edge Cases Worth Knowing
- Inherited or divorce-awarded homes. Fannie Mae’s cash-out guidance waives the waiting period for property acquired this way. Whether FHA waives its 12-month occupancy rule for inheritance needs checking against the current HUD handbook, so do not assume it.
- Bought within the last year. FHA cash-out is not open to you yet. Fannie Mae offers delayed financing for cash purchases within six months, which still prices and caps as cash-out.
- High debt-to-income. Fannie Mae’s eligibility matrix adds minimum reserves on certain cash-out files when DTI exceeds 45%.
- Texas. A separate state cash-out product exists with its own constraints. Texas homeowners should ask about it directly.
When to Stay and When to Move
Staying in FHA fits when:
- Credit or a recent payment event limits conventional options.
- Equity is close to the 80% line and a lower balance is not an option.
- You expect to move before leaving would pay back.
Moving to conventional fits when:
- Credit has strengthened.
- At least 20% equity remains after the new loan.
- You plan to keep the home past the break-even point.
If you only want a cheaper insurance picture and no cash, a no-cash-out refinance may suit better than a cash-out. A HELOC or home equity loan can also avoid replacing a first mortgage you like, though the new second lien changes your overall debt picture.
Risks to Weigh
Cash-out turns equity into debt. A higher balance means a smaller cushion if values fall. A cash-out also replaces your existing interest rate and amortization schedule, so it is a new loan, not an add-on. Debt consolidated at closing can rebuild afterward. Worth stress-testing before committing.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
- Cash-out refinance: A new mortgage that pays off your old one and gives you the extra equity in cash.
- Upfront premium: An FHA mortgage insurance charge, typically financed into the loan.
- Annual premium: FHA’s ongoing insurance charge, billed monthly inside the payment.
- Private mortgage insurance: Conventional loan insurance you can cancel once you reach set equity levels.
- Combined LTV: Total mortgage debt on the home divided by its appraised value.
- Seasoning: How long you have owned and lived in the home before you can refinance.
Frequently Asked Questions
Do I need an FHA loan today to do an FHA cash-out?
No. A borrower with any mortgage, or none, can use it if they have owned and lived in the home for 12 months before the case number. At least one borrower must hold title before the case number is assigned. The new loan will be FHA-insured regardless of what you have now.
Can I take cash out and drop FHA mortgage insurance at the same time?
Only with a conventional cash-out. It pays off the FHA loan, which ends FHA’s insurance, and at 80% or less it generally avoids borrower-paid mortgage insurance. Eligibility depends on credit, debt ratios, reserves and the appraisal.
What if my credit has dropped since I bought?
FHA tolerates lower credit than many conventional lenders, but a recent mortgage delinquency sends an FHA cash-out to manual underwriting. Conventional overlays vary by lender. A lower score may call for a different structure, such as an FHA streamline if you are not taking cash.
How do I cancel mortgage insurance on a conventional loan later?
Request cancellation in writing once the balance is scheduled to reach 80% of original value. You need a good payment history, no junior liens, and proof that value has not fallen. It ends automatically at 78% if you are current.
Does the 2023 premium cut mean FHA insurance is cheap now?
It is lower, not gone. The annual premium dropped for most new borrowers, but you still pay it monthly, plus the financed upfront premium. Whether that beats a conventional loan depends on your credit and leverage.
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. 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 brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Handbook 4000.1 Update 7.5 transmittal
2. HUD Mortgagee Letter 2020-30
3. HUD press release PR 23-041
4. CRS: FHA-Insured Home Loans overview
5. Fannie Mae consumer page on PMI
6. CFPB: When can I remove PMI
7. 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 a Conventional or FHA Borrower Do a VA Cash-Out in Year One? · Should You Stay With an FHA Cash-Out or Move to Conventional? · How Much Cash a VA Cash-Out Adds Over Your FHA or Conventional Loan
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.