The Quick Read: Usually only when your credit score is the obstacle. FHA cash-out tops out at 80% of the home’s value, the same cap a conventional cash-out has on a one-unit primary residence, so a lower score does not get you more cash. It may get you approved, at the cost of FHA mortgage insurance. If your credit is solid, conventional often costs less. Every figure here is subject to lender guidelines and full file review, and nothing is a commitment to lend.
What Does a Lower Score Actually Change?
A lower score changes whether you can get approved and what the loan costs. It does not change how much equity you can pull out. That is the point most borrowers miss.
Across the wholesale programs Lendmire places FHA files with, FHA cash-out reaches 80% LTV on a home you have owned and occupied for 12 months before the case number is assigned. Fannie Mae’s official eligibility matrix caps a one-unit primary-residence conventional cash-out at 80% and a two-to-four unit at 75%. So the leverage is the same on a one-unit home. The difference is who gets through the door. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
FHA looks at the file more flexibly on credit and debt ratios. Conventional leans harder on score, and pricing gets worse as the score drops. FHA charges mortgage insurance in exchange for that flexibility. That tradeoff is the whole decision.
If you want the program details, see Lendmire’s FHA cash-out refinance program page.
Side-by-Side: FHA vs Conventional Cash-Out
| Factor | FHA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Max leverage, one-unit home | 80% LTV | 80% LTV |
| Credit flexibility | Wider | Narrower |
| Mortgage insurance | Upfront and annual premium | None on this loan type |
| Debt ratios | 31/43 base, up to 40/50 with factors | Set by the automated underwriting finding |
| Occupancy | Owner-occupied principal residence | Broader (second homes, rentals) |
The occupancy row matters for one reason only. FHA is for the home you live in. If you own a second home or a rental, conventional leverage is lower and FHA is not available for it.
How Does FHA Mortgage Insurance Change the Cost?
FHA mortgage insurance is the main cost of choosing FHA. It comes in two parts, and both change your loan.
The first is an upfront premium of 1.75% of the base loan amount. HUD’s FHA answers page confirms this structure. You can finance it into the loan. That lowers the cash due at closing. It also raises your balance, and the added balance uses up some of your 80% limit.
The second is an annual premium, billed monthly. In the programs Lendmire works with, it falls between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. At or below 90% LTV on a thirty-year loan, it ends after eleven years. Above 90% LTV, it lasts the term. On a cash-out at 80%, that eleven-year path is the one that usually applies.
Here is the catch. FHA looks cheaper when you compare only the principal-and-interest line. It stops looking cheaper once the monthly premium is added. Compare like to like: the full payment, with taxes, insurance and mortgage insurance on both quotes. The CFPB has taken action against a lender whose disclosures compared a new principal-and-interest-only payment against an old payment that included taxes and insurance, making the new loan look cheaper than it was.
What Credit Score Do You Need for FHA Cash-Out?
The wholesale programs Lendmire places FHA loans with start at a 580 decision score. HUD has a lower tier for purchases, but the network does not reach below 580, so plan around that number.
Some lenders set a higher floor than the program minimum. That is why one lender can decline a file another one takes. If you are turned down, the answer is often a different lender’s overlay, not a dead end. Scores in the low 600s are a common zone where FHA is the stronger fit and conventional pricing starts to sting.
Where Does FHA Win, and Where Does Conventional?
FHA wins when the score is the problem. Conventional wins when it is not. The mid-range borrower is the hard case.
FHA tends to fit when:
- Your score sits near the bottom of what conventional accepts, or below it.
- Your debt-to-income ratio is tight and needs the wider FHA ratios.
- You qualify on FHA with documented compensating factors and conventional would flag the file.
Conventional tends to fit when:
- Your score is strong enough that conventional pricing is not penalized.
- You plan to stay in the loan a long time, since FHA’s monthly premium keeps running.
- You want to avoid the upfront premium and the added balance that comes with financing it.
Run both quotes when:
- You qualify for either one. This is the real decision for most readers. Ask for both Loan Estimates, then compare the full monthly payment and the cash you net after payoff and costs.
Honestly, a borrower on the line between the two programs should let the quotes decide, not a rule of thumb.
What Derails an FHA Cash-Out File?
Payment history derails more FHA cash-out files than the score does. Cash-out has a stricter history rule than a no-cash-out refinance.
Under HUD Mortgagee Letter 2020-30, a cash-out loan is downgraded to manual underwriting if a mortgage shows a current delinquency, any delinquency within 12 months of case-number assignment, or fewer than 12 consecutive payments since a forbearance plan ended. One late mortgage payment in the past year is not a rounding error. Manual underwriting is harder to clear.
A few other friction points:
- Occupancy and ownership. You must have owned and occupied the home for 12 months. Files that skip this check get kicked back.
- Appraisal. The appraisal sets your cash. Maximum loan equals the LTV percentage times the adjusted value. A light appraisal shrinks the proceeds.
- Financed premium. The upfront premium, the payoff and closing costs all come out of the 80% limit before you see any cash.
- Credit events. HUD’s waiting periods apply: two years from a chapter 7 discharge and three years from a foreclosure. Those are HUD rules, not a network promise.
- Loan limits. County loan limits apply and change every year.
An 80% cap does not guarantee approval or any particular amount of cash. Lenders weigh payment history, income, the new payment and the appraisal together.
Key Terms Defined
Cash-out refinance: A new mortgage that pays off your old one and gives you the leftover equity as cash.
LTV (loan-to-value): Your loan balance divided by the home’s appraised value.
Upfront premium: A one-time FHA insurance charge, 1.75% of the base loan, that can be financed into the loan.
Annual premium: An FHA insurance charge billed monthly as part of your payment.
Decision score: The credit score the lender uses to decide what FHA financing you can receive.
Manual underwriting: A loan review done by a person rather than by the automated system, usually with tighter limits.
Can You Leave FHA Later?
Yes, and it is worth planning for. Many borrowers use FHA now to get approved, then refinance to conventional once the score improves. The eleven-year premium window on a loan at or below 90% LTV is the clock to watch. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Two cautions. A new refinance has its own closing costs, so the move has to save enough to justify them. And a streamline refinance of an existing FHA loan keeps the premium going, so it is not a way out of insurance.
Should You Take Cash Out at All?
Not always. A cash-out raises your balance and resets your term. It also turns other debt into debt secured by your home. The CFPB notes that cash-out refinances can raise foreclosure risk, and that home equity lines of credit tend to carry lower rates, payments and foreclosure risk. If you only need a modest amount, a home equity line may fit better than refinancing your whole first mortgage.
Another way to look at it: if your current first mortgage is already good, a second lien may beat replacing it. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Questions to Ask Any Lender
Ask both programs the same questions so the quotes line up.
1. What is the full monthly payment, including mortgage insurance, taxes and homeowners insurance?
2. Is the upfront premium financed, and what balance does that produce?
3. What is the net cash after payoff, costs and the financed premium?
4. Do you apply a credit minimum above the program minimum?
5. How long does mortgage insurance last on this loan?
Frequently Asked Questions
Can I get more cash from FHA than from conventional with lower credit?
No. On a one-unit primary residence, both cap at 80% LTV. A lower score affects approval and cost, not the cash limit. Your appraisal, payoff, closing costs and any financed premium decide the net amount. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
What is the lowest score I can use for an FHA cash-out?
Through the wholesale programs Lendmire places FHA loans with, the starting point is a 580 decision score. Individual lenders may set a higher minimum, so a file one lender declines may fit another’s guidelines. All figures are subject to lender guidelines and full file review.
Does a late mortgage payment hurt an FHA cash-out?
Yes. Any mortgage delinquency within the prior 12 months moves the file to manual underwriting, which is harder to clear. A current delinquency or a recent forbearance exit does the same.
Do I need an existing FHA loan to use FHA cash-out?
No. You can refinance a conventional loan, or a home you own free and clear, into an FHA cash-out. You do need to have owned and occupied the home for 12 months, and county loan limits apply.
Does FHA mortgage insurance ever go away?
Often, yes, but not always. On a thirty-year loan at or below 90% LTV, the annual premium ends after eleven years. Above 90% LTV it lasts the term. The upfront premium is paid once, usually financed.
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. Fannie Mae Eligibility Matrix
2. HUD FHA Answers: MIP structure
4. HUD Mortgagee Letter 2020-30
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 and Conventional Cash-Out Requirements Side by Side for a Primary Home · Conventional vs FHA Cash-Out for a Homeowner Based on Credit and DTI · Conventional Cash-Out vs FHA Cash-Out for a Current FHA Homeowner
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.