Is an FHA Cash-Out Refinance Easier to Get Than a Conventional One?

The Quick Read: It depends on what is blocking you. FHA is easier if your obstacle is credit or a higher debt load. It is not easier if your obstacle is equity. Both programs cap a cash-out loan at 80% of the home’s value on a 1-unit primary residence, so either one leaves you with at least 20% equity. FHA is stricter on occupancy and payment history, and it adds mortgage insurance. Program details are subject to lender guidelines and full file review.

“Easier” means different things on different files. A borrower with a 600-range score and a high debt load sees one answer. A borrower with strong credit and a recent late payment sees another. The sections below split the question into parts so you can find yours.

What Does “Easier” Actually Mean?

“Easier” breaks into six tests: equity, credit, debt ratios, occupancy, payment history, and cost. FHA wins on credit and ratios. The two programs tie on equity. Conventional wins on payment-history tolerance in some cases and on ongoing cost for strong-credit borrowers.

Most online answers reduce the question to credit score. That is one test of six. A file that clears the credit test can still fail on seasoning or a late payment, and a file that fails conventional on score can clear FHA cleanly.

FHA vs. Conventional Cash-Out, Factor by Factor

Every figure in the FHA column is a program guideline, subject to lender guidelines and full review. County loan limits also apply to FHA and change every year.

Why Equity Is the Same on Both

Equity is the one place FHA gives no advantage. HUD cut the FHA cash-out maximum from 85% to 80% for case numbers assigned on or after September 1, 2019, and said the change aligned FHA with the maximum cash-out LTV that Fannie Mae and Freddie Mac allow. HUD also noted that cash-out loans had become a large and growing share, 64 percent, of FHA-insured refinance transactions. That is why the cap tightened. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.

On the conventional side, Fannie Mae’s Selling Guide governs cash-out transactions, and its eligibility matrix lists 80% for a 1-unit principal residence and a lower cap for 2-4 units.

A higher credit score does not raise the FHA cap. A lower score does not lower it either. Old advice about cashing out to 85% or 95% is out of date.

Where FHA Is Genuinely More Flexible

Start with debt ratios. Across the wholesale programs Lendmire places FHA files with, the base ratio pair is 31/43 (housing and total). Documented compensating factors can stretch that up to 40/50 at the top tier, and the automated underwriting finding governs most files.

Score floors work differently. HUD’s rules allow lower scores than conventional guidelines do, but individual lenders set their own minimums, and those are often higher than HUD’s. Ask for the lender’s actual floor, not the program headline.

Conventional pricing moves with the file. Fannie Mae applies loan-level price adjustments based on credit score, loan purpose, and occupancy. A weaker score on a cash-out loan means a heavier adjustment, which is built into the loan’s cost. That is part of why borrowers with fair credit often look at FHA first.

When a conventional file’s debt-to-income ratio runs above 45%, Fannie Mae requires six months of reserves on DU casefiles. FHA files have no equivalent reserve test in the same form, which is a quiet advantage for tight-ratio borrowers.

Where FHA Is Stricter

Occupancy and payment history are the two tests that sink FHA files.

Occupancy. FHA cash-out is for owner-occupied principal residences only. At least one borrower must have owned and occupied the home for the 12 months before the case number is assigned. Lenders document this with employment records or utility bills. A home you rented out last year does not qualify, and neither does a second home. Conventional allows other occupancies, though at lower leverage.

Payment history. HUD’s standard is that all mortgage payments are made within the month due for the previous 12 months. One 30-day late in that window can stop an FHA cash-out file. Conventional underwriting weighs lates differently, and credit score and overall profile carry more of the decision.

Pull your mortgage payment history before you apply.

Seasoning. Conventional is looser here. At least one borrower must have been on title for six months, and an existing first mortgage being paid off must be at least 12 months old, measured note date to note date. FHA’s 12 months of ownership and occupancy is the longer clock.

What the Easier Path Costs

FHA ease comes with mortgage insurance. Under HUD Mortgagee Letter 2023-05, the upfront premium is 1.75% of the base loan amount on all FHA mortgages. It can be financed on top of the base loan, which grows the balance you carry.

The annual premium is charged on the balance and depends on term, loan amount, and LTV. On a thirty-year loan above 90% LTV, it lasts for the term. At or below 90%, it ends after eleven years. Because an FHA cash-out tops out at 80% LTV, the shorter schedule is the one that typically applies.

A conventional cash-out at 80% LTV or less typically carries no private mortgage insurance. The trade-off is mortgage insurance on FHA versus price adjustments on conventional. For a borrower with strong credit, conventional usually costs less over time. For a borrower with fair credit, the adjustments can narrow or erase that gap.

(Ask each lender to show the full cost side by side on the Loan Estimate. That document is where the comparison becomes concrete.)

When Conventional Is the Easier Choice

Conventional is easier in four situations:

• Your credit is strong and the extra mortgage insurance on FHA would add cost with no benefit.
• You have a recent late payment. FHA’s 12-month window is unforgiving.
• The home is not your primary residence, or you moved in less than 12 months ago. FHA cash-out is off the table, though conventional has lower-leverage options for second homes.
• You inherited the home. Fannie Mae applies no waiting period to inherited property or property legally awarded in a divorce or separation. FHA also waives the occupancy period for an inherited home, unless you treated it as a rental after inheriting it.

Manufactured homes are the other split. FHA requires the home to have been permanently installed on a site for more than 12 months before the case number. Conventional cash-out on a manufactured home is usually capped at lower leverage than a site-built home.

Three Borrower Scenarios

These are hypothetical profiles, described in plain terms.

Fair credit, high debt load. A homeowner with a score in the 600s, a total debt ratio near 48%, and a clean 12-month payment record. Conventional is likely to stall on ratios and price adjustments. FHA’s wider ratio range gives this file a path, subject to the lender’s own score minimum. Best fit: FHA.

Strong credit, one recent late. A borrower with a high score and one 30-day late seven months ago. FHA’s payment-history test is a hard stop here. Conventional weighs the whole profile. Best fit: conventional.

Moved in nine months ago. An owner with good credit who bought and moved in recently. FHA’s 12-month occupancy clock has not run. Conventional’s six months on title has, though the existing first mortgage must also be 12 months old. Best fit: conventional, if the note age clears. Otherwise, wait.

Which Should You Try First?

Run this sequence:

1. Confirm the home is your primary residence and that you have owned and lived in it for 12 months. If not, FHA is off the table for now.

2. Pull 12 months of mortgage payment history. Any 30-day late points you to conventional.

3. Check your credit and debt ratios. Strong on both, start with conventional. Tight on either, start with FHA.

4. Compare both on a Loan Estimate, including mortgage insurance and price adjustments.

Key Terms Defined

LTV (loan-to-value): the loan amount divided by the home’s appraised value.

Cash-out refinance: a new, larger mortgage that pays off your current one and gives you the difference in cash.

Seasoning: the minimum time you must own, occupy, or hold a loan before you can refinance.

UFMIP: the FHA upfront mortgage insurance premium, charged on the base loan amount.

LLPA: a loan-level price adjustment that conventional pricing applies based on score, purpose, and occupancy.

Compensating factors: documented strengths, such as reserves or stable income, that let a file clear higher debt ratios.

What a Cash-Out Does to Your Budget

A cash-out refinance replaces your current loan with a larger one, so the balance rises. CFPB research notes that converting unsecured debt into mortgage debt secured by your home can put the home at risk of foreclosure if payments become unsustainable. A cash-out also differs from a home equity loan or HELOC, which sits on top of your first mortgage as a second loan and leaves the original intact. If your current terms are worth keeping, a second loan may fit better.

Next Step

If you are weighing a cash-out refinance on the home you live in against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. The brokerage’s FHA cash-out refinance program page lays out the structure, and Lendmire’s piece Is an FHA Cash-Out Easier to Qualify For Than a Conventional Cash-Out? goes further on the qualification side. Every figure here is a guideline, 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.

For current guidelines and terms, see Lendmire’s FHA loan programs page.

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.

References

1. HUD press release on FHA cash-out refinance risk

2. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions

3. Fannie Mae Loan-Level Price Adjustment Matrix

4. HUD Mortgagee Letter 2023-05

5. CFPB research on cash-out refinances and non-mortgage debt