FHA Cash-Out Or Conventional Cash-Out — The Quick Read: It depends on your equity, your credit, and how long you plan to keep the home. Either route replaces your current FHA loan with a larger one and pays you the difference in cash. Both cap the new loan at 80% of the home’s appraised value. Switching is not automatically cheaper, because FHA mortgage insurance does not move with your credit score and conventional pricing does.
What Actually Happens in Either Cash-Out?
Both paths work the same way mechanically. A new loan pays off your old FHA mortgage. Whatever is left after closing costs comes to you as cash.
An appraiser sets the home’s value. That value sets your ceiling. The cash you can take is the gap between the maximum loan and what you owe, less costs.
Think of it as selling your old loan and buying a new one. Your rate, term, and payment all reset. That is the mechanics of any refinance, and it is worth saying plainly before the comparison starts.
Cash-out is also different from a home equity loan or HELOC. Those leave your first mortgage in place. If your current first mortgage is one you love, that matters.
How Does the FHA Route Work?
The FHA route keeps you inside the FHA program with a new, larger FHA loan. Across the wholesale lenders Lendmire works with, the FHA cash-out refinance program reaches 80% LTV on a home you have owned and occupied for 12 months before the case number is assigned. LTV, or loan-to-value, is your loan balance divided by the home’s value. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
HUD set that 80% cap in Mortgagee Letter 2019-11. Older caps were higher, and people still quote them. Skip those numbers. They are history.
Other rules to know:
- Primary residence only. Second homes and rentals do not qualify for standard FHA cash-out. Occupancy decides the leverage.
- Payment history is checked. Lenders look at how you have handled the current mortgage.
- Non-occupant co-borrowers don’t help. A co-borrower who does not live in the home cannot add income to a cash-out file.
- Inheritance is a special case. Inherited homes can skip the usual occupancy wait if you have not used them as a rental since inheriting. That is a narrow exception, so confirm it with your loan officer.
- Manufactured homes need to be permanently installed on a site, and have been for a while. Conventional caps are usually lower for these homes.
On credit, the wholesale programs Lendmire places FHA loans with start at a 580 decision score. Ratios start at 31/43 (housing payment over income, then total debts over income) with no compensating factors. Documented factors can reach 40/50 at the top tier. Automated underwriting findings govern most files. All of it is subject to lender guidelines and full file review.
What Does FHA Mortgage Insurance Cost You Here?
A FHA-to-FHA cash-out carries a new upfront premium of 1.75% of the base loan, usually financed into the balance. It also carries an annual premium of 0.15% to 0.75% of the balance, depending on term, loan amount, and LTV. These are program mechanics, not a quote.
Duration matters. On a thirty-year loan above 90% LTV, the annual premium lasts the full term. At or below 90%, it ends after eleven years. A cash-out refinance at 80% LTV would normally fall on the favorable side of that line, so the shorter eleven-year duration would typically apply, provided the loan stays at or below 90% LTV.
Here is the catch that surprises people. FHA premiums are set by HUD and do not rise or fall with your credit score. That is a gift if your credit is thin. It is a drag if your credit is strong.
There is one more wrinkle. HUD’s FHA Homeowners Fact Sheet says part of your old upfront premium can be credited toward the new one on a FHA-to-FHA refinance. For loans endorsed after December 8, 2004, no refund is due after the third year. Moving to conventional forfeits the credit. If your FHA loan is still young, that credit is a real point for staying.
How Does the Conventional Route Work?
The conventional route pays off your FHA loan with a Fannie Mae-style conforming loan. The cap on a one-unit primary residence is also 80%, per the Fannie Mae eligibility matrix. Two- to four-unit primary residences are capped lower, at 75%. A cash-out refinance replaces your existing mortgage with a new, larger loan, as the CFPB’s research blog on cash-out borrowers explains.
The seasoning rule differs from FHA’s. Under the Fannie Mae Selling Guide, an existing first mortgage you pay off must be at least 12 months old, measured from the old note date to the new one. Seasoning just means a required waiting period. A narrow exception exists for recent cash buyers, called delayed financing, and it carries conditions. Free-and-clear homes also qualify.
Here is where the paths split on cost. Conventional pricing adjusts with credit score and LTV. Strong credit with real equity can mean cheaper insurance, or none at all. Weaker credit or a higher LTV pushes pricing up. Fannie Mae’s published loan-level price adjustments rise as scores fall.
Conventional files also tend to be pickier about debt-to-income. Reserves, meaning cash left after closing, can come into play when ratios run high. Exact thresholds vary by lender and underwriting method.
FHA vs. Conventional Cash-Out: Side by Side
| Factor | Stay FHA | Switch to Conventional |
|---|---|---|
| Max LTV, one-unit home | 80% | 80% |
| Occupancy wait | 12 months owned and occupied | Existing first mortgage 12 months old |
| Credit sensitivity | Low (flat insurance) | High (pricing moves) |
| Mortgage insurance | Upfront plus annual | Depends on credit and LTV |
| Old premium credit | Possible on a young loan | Lost |
| Property use | Primary residence only | Other uses at lower caps |
Treat the table as a map, not a verdict. Your file decides which column wins.
Who Should Stay FHA?
Staying FHA tends to make sense if your credit has not improved much since you bought. Because the premium does not care about your score, a middling file often pays less here than in a conventional pricing grid. This is a general pattern, not a promise.
It also fits if you are within the first three years of the FHA loan. The premium credit is real money you would otherwise leave on the table.
A third case: your debt ratios run high. FHA’s documented compensating factors reach 40/50 at the top tier, and conventional files are often less forgiving.
Who Should Switch to Conventional?
Switching tends to win when your credit has climbed and you will keep 20% or more equity after cashing out. The pricing adjustments shrink, and the insurance cost over time can fall well below FHA’s. At 80% LTV, conventional cash-out may not require private mortgage insurance at all. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Here is the honest part. FHA mortgage insurance on a long loan can follow you for years. A common route out is refinancing into conventional. If you plan to stay a decade or more, the cumulative insurance cost deserves a hard look.
Picture a homeowner whose score has risen well since the purchase and who has ample equity. Conventional likely fits. Now picture a homeowner two years into the FHA loan, with the same score as at purchase and thin cash reserves. Staying FHA likely fits. The same question, two different answers.
This one is a genuine toss-up for many people in the middle. The only clean way to settle it is to compare both scenarios with real numbers on a Loan Estimate.
The Mistakes That Cost People Money
- Assuming FHA lets you borrow 85% or 95%. Those caps are gone. The cap is 80%.
- Expecting cash from a Streamline. An FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review. It cannot pay you cash. Cash-out is a separate transaction.
- Counting on insurance falling off at 80% LTV. FHA insurance cancellation follows the original loan’s terms, not your current equity.
- Expecting a refund check. The old premium credit applies to a new FHA loan only.
- Assuming conventional always removes insurance. At 80% it may not require it, but pricing still reacts to credit and LTV.
- Treating the appraisal as a formality. The appraised value sets your ceiling. A low number shrinks your cash.
- Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Is the Cash Worth the Trade?
Cash-out turns equity into debt secured by your home. That raises the stakes. The CFPB’s research on cash-out borrowers found that paying non-mortgage debts with mortgage debt can raise foreclosure risk. Missing a credit card payment rarely costs you the house. Missing a mortgage payment can.
The same research found the move can make sense when the new borrowing costs less than the debts it pays off. Borrowers’ credit scores rose right after cash-out, then drifted down while staying above where they started. Card balances often crept back up. So the plan after closing matters as much as the loan.
Your monthly payment may rise because a larger loan replaces the old one. The term and rate reset too, which can stretch out your payoff. Closing costs apply either way, and the FHA route adds the upfront premium. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
If you only want a lower payment and no cash, a Streamline or a rate-and-term refinance may fit better. Across the wholesale programs Lendmire works with, the FHA rate-and-term with an appraisal reaches 97.75% on a principal residence occupied for the previous twelve months.
Key Terms Defined
Cash-out refinance: A new, larger mortgage that pays off the old one and gives you the difference in cash.
LTV (loan-to-value): Your loan balance divided by the home’s appraised value.
Seasoning: A required waiting period, such as how long you have owned the home or held the loan.
Upfront premium: A one-time FHA mortgage insurance charge, set at 1.75% of the base loan and usually financed.
Annual premium: FHA mortgage insurance paid over time, between 0.15% and 0.75% of the balance depending on the loan.
Decision score: The credit score a lender uses to evaluate your file.
Frequently Asked Questions
Can I get cash out if I already have an FHA loan?
Yes, if you meet the occupancy rules. The home must be your primary residence, and at least one borrower must have owned and occupied it for 12 months before the case number. The new loan is capped at 80% of appraised value. Approval is subject to lender guidelines and full file review.
Does switching to conventional always remove my mortgage insurance?
No. At 80% LTV, conventional cash-out may not require private mortgage insurance. But pricing adjustments rise with lower credit scores and higher LTV, so the savings are not automatic. Run both scenarios side by side before deciding. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Do I lose anything by leaving FHA early?
Possibly. On a FHA-to-FHA refinance, part of your old upfront premium can be credited to the new one. No refund is due after the third year of insurance, and moving to conventional forfeits the credit. The younger your FHA loan, the more that credit matters.
Can I do a cash-out on a rental or second home with FHA?
No. Standard FHA cash-out is for your primary residence only. Occupancy decides the leverage, and conventional programs use separate, lower caps for other property uses.
How is this different from a HELOC?
A HELOC leaves your first mortgage in place and adds a second loan. A cash-out refinance replaces your first mortgage entirely. If your current loan is one you want to keep, that difference can decide the whole question.
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. Review a Loan Estimate for each route before you choose. The cheaper path is the one that fits how long you will actually keep the home.
For the program’s current guidelines, see a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, USDA and HUD-184 home purchase financing with grant-style, forgivable and repayable down payment assistance options in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Mortgagee Letter 2019-11
2. HUD FHA Homeowners Fact Sheet
3. Fannie Mae Eligibility Matrix
4. CFPB’s research blog on cash-out borrowers
5. Fannie Mae Selling Guide B2-1.3-03
6. loan-level price adjustments
7. CFPB: Cash-Out 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: Refinancing An FHA Loan Into A Conventional Loan To Drop The Premium · FHA Rate-and-term Refinance With An Appraisal: How Much You Can Borrow · Can You Refinance An FHA Loan With A Late Payment On Your Record?
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
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.