FHA Cash-Out Refinance Requirements Versus Conventional on a $300K Balance

The Quick Read: For a homeowner with a $300K payoff, the two routes cap leverage in a similar place. The real differences are credit flexibility, mortgage insurance, and how long you have owned the home. FHA tends to suit borrowers with bruised credit or tighter ratios who can live with the added insurance cost. Conventional tends to suit borrowers with stronger credit and a clean payment history who want to avoid it. Both are subject to lender guidelines and full file review.

Which one fits depends on your credit profile, your debt load, and how much equity the appraisal actually supports.

Side-by-Side

Here is how the two compare for a principal residence with a roughly $300K mortgage payoff. Figures for the FHA column reflect the wholesale programs Lendmire places files with. Conventional figures reflect agency guidelines, and your lender’s overlays may differ.

A few rows deserve a closer look. Leverage is where borrowers expect a big gap and rarely find one. Mortgage insurance is where the cost difference really lives.

Key Terms Defined

LTV (loan-to-value): The new loan balance divided by the appraised value of the home.

Combined LTV: The first mortgage plus any second lien, divided by the value. A HELOC counts here.

Upfront premium: The one-time FHA mortgage insurance charge, set at 1.75% of the base loan and usually financed into the balance.

Annual premium: The ongoing FHA mortgage insurance charge, between 0.15% and 0.75% of the balance depending on term, loan amount and LTV.

Seasoning: The length of time you must have owned, occupied, or held title before you can take cash out.

What a $300K Payoff Means at the Ceiling

The payoff sets the floor for the new loan. With leverage capped at 80%, a $300K payoff with zero cash out and zero financed costs needs a home that appraises at roughly one and a quarter times the payoff. Every dollar of cash, every financed closing cost, and any second lien must also fit under that same ceiling.

Picture a homeowner who bought several years ago and has paid the balance down steadily. If the home has appreciated well past that one-and-a-quarter multiple, there is room for cash. If it has not, the ceiling may leave only enough to cover the payoff and costs. Run that test before you compare programs, because the program choice matters less than the equity you actually have.

On the FHA side, the upfront premium is figured on the base loan. How it interacts with the 80% cap is something your loan officer should confirm on your specific file.

When FHA Is the Better Fit

FHA is the stronger pick when credit or ratios are the obstacle rather than equity. Across the wholesale programs Lendmire places FHA files with, a 580 decision score is where eligibility starts. Conventional lenders generally set their floors higher and lean harder on score, so a borrower in the lower credit tiers often finds FHA is the only cash-out door open.

Ratios work the same way. FHA’s base pair is 31/43 housing and total debt with no compensating factors, and documented factors can stretch that to 40/50 at the top tier. If your debt load is heavy but your payment history is steady, that flexibility can matter more than the insurance cost.

Credit events also play differently. HUD sets its own waiting periods, two years from a chapter 7 discharge and three from a foreclosure. Those are HUD’s rules, not a promise from any lender, and individual lenders may add conditions. A borrower in recovery from a past credit event may find FHA’s framework easier to reach than conventional guidelines.

The 80% cap is not a quirk of the program. HUD Mortgagee Letter 2019-11 cut the maximum LTV and combined LTV on cash-out refinances to 80%, measured against the property’s adjusted value. HUD’s own announcement described the change as a reduction from a prior, higher limit, following an earlier cut in 2009. If an older article tells you FHA cash-out reaches a higher limit than 80%, it is out of date.

The tradeoff is the insurance. FHA charges an upfront premium of 1.75% of the base loan, plus an annual premium. On a thirty-year loan above 90% LTV, the annual premium lasts for the term. At or below 90% LTV it ends after eleven years, which is the tier a cash-out capped at 80% falls into. Confirm the current schedule with your loan officer before you rely on that. For a $300K balance, the upfront premium is a meaningful added cost, so ask for the Loan Estimate and read the line. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.

One more FHA point: you can use FHA cash-out to leave a conventional loan. That differs from the FHA Streamline, which refinances an existing FHA loan with no appraisal and limited credit review but essentially no cash back. If you want money out, Streamline is not the tool.

When Conventional Is the Better Fit

Conventional is the stronger pick when your credit is solid and you want to avoid ongoing mortgage insurance. At 80% leverage or below, a conventional cash-out generally does not carry private mortgage insurance, though the lender confirms that on your file. For a borrower with a strong score and clean history, that removes both the FHA upfront premium and the annual premium.

Timing can favor conventional as well. Fannie Mae’s Selling Guide requires that at least one borrower has been on title for six months, and that the existing first mortgage is at least 12 months old if it is being paid off. FHA’s clock is longer: the home must have been owned and occupied as your principal residence for the 12 months before the case number is assigned. A borrower who has owned the home for less than a year may qualify under conventional first.

Conventional can also be used on homes other than your primary residence, while FHA standard cash-out is for the home you live in. Occupancy shapes the terms on the conventional side, and lenders set their own limits for a second home, so confirm them on your file.

Conventional does bring its own checks. When DTI runs above 45%, Fannie Mae calls for six months of reserves on automated-underwriting files. A borrower with thin savings and heavy debts can hit that wall. FHA has no equivalent reserve test on a typical file, which is part of why it works for tighter budgets.

Your existing mortgage matters here too. Either program pays off your current first mortgage in full, and on the conventional side that loan’s age is part of the test. On the FHA side, the home’s ownership and occupancy history is what counts.

The Experience Side: Where Files Actually Stall

Appraisals and the occupancy clock are the two places a cash-out file most often needs a second look. Borrowers often assume they have more equity than the appraiser finds. They also count months of ownership from closing when FHA counts back from the case number. A short check of both before you apply saves a re-do.

Payment history is the other quiet gatekeeper. A recent late payment can steer a file toward one program or away from both. A candid look at your last year of payments, before you pick a lane, is more useful than shopping programs first.

What Both Routes Share

Either route replaces your entire first mortgage, not just the cash portion. The CFPB’s guide for homeowners using home equity notes that a cash-out may extend the time to pay off the mortgage and may raise the monthly payment, because the new loan is larger. A longer term with a bigger balance costs more in total interest even when the monthly figure looks manageable.

Closing costs can be financed, but only to the extent they fit under the leverage ceiling. A HELOC or second lien counts toward combined LTV, so it reduces the cash available.

Both loans use your home as collateral for the larger balance. If your reason for taking cash is to consolidate other debt, weigh that risk plainly: unsecured balances become secured against your home.

A refinance on the home you live in also carries a federal right to cancel. The CFPB’s rescission page explains the short window after signing. If you rescind a refinance, you still owe the original loan.

A Balanced Verdict

Here is the plain version. If your credit sits in the middle or lower tiers, your ratios are tight, or you have little in reserves, FHA is often the realistic route, and the insurance premium is the price of that flexibility. If your credit is strong and your equity cushion is real, conventional usually costs less over the life of the loan because it avoids mortgage insurance at 80% leverage.

The flip points are worth naming:

• Short ownership history: conventional’s six-month title clock may open the door before FHA’s 12-month clock does.
• Thin equity: neither program helps much, and a different structure, or waiting, may be the better move.
• Heavy debts: FHA’s ratio flexibility can outweigh its insurance cost.
• Strong credit and savings: conventional usually wins on total cost.

If the borrowing need is small and your current loan is a good one, keeping it and using another source of funds may beat replacing the whole mortgage. That is a legitimate answer too.

Comparing Your Options

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. Lendmire is a mortgage broker arranging loans through wholesale lenders in the 16 states where it holds consumer lending licenses.

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.

References

1. HUD Mortgagee Letter 2019-11

2. HUD press release on FHA cash-out lending

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

4. CFPB homeowner guide to using home equity

5. CFPB’s rescission page