The Quick Read: FHA cash-out and conventional cash-out both let you borrow against a home with no mortgage, and both treat it as a cash-out loan. FHA tends to fit borrowers whose credit profile makes conventional harder. Conventional tends to fit borrowers with strong credit who want to avoid FHA’s mortgage insurance structure. Neither gives you more cash by default, because HUD set the FHA cap to line up with the government-sponsored enterprises that set conventional limits.
The Honest Answer First
Owning your home outright does not make a cash-out refinance simple. It makes it unusual. There is no old loan to pay off, so nearly every dollar of the new loan comes to you, and every cost of the loan comes out of the same pile.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.18% as of November 5, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not an FHA cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the FHA cap on a principal residence with the upfront premium financed, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
An illustration, not a Loan Estimate, an approval, a quote, or a commitment to lend. The rate shown is the weekly Freddie Mac thirty-year conventional benchmark, used as a market reference; an FHA cash-out is priced by the lender at lock, and this is not an FHA cash-out refinance quote. HUD’s cap limits the base loan; the upfront premium is financed on top of the capped base loan; the monthly premium for the first year follows the snapshot’s schedule. Cash available means the base loan the cap permits less the balances retired, before closing costs, which this calculator leaves out. The line figure applies the line program’s combined loan-to-value ceiling to the same value and balance. Taxes and insurance are estimates you can edit. Licensed in sixteen states for consumer mortgages.
Here is who each option is really for. FHA is for the owner-occupant whose credit or debt load makes a conventional file a stretch. Conventional is for the owner whose credit and ratios are strong enough that FHA’s insurance premiums would be an unnecessary cost. Plenty of borrowers qualify for both. For them, the choice comes down to cost structure and how long they plan to keep the loan.
A quick definition before the comparison. A cash-out refinance replaces your existing mortgage with a bigger one and pays you the difference. On a paid-off home, the “existing mortgage” is zero, so you are simply placing a brand-new first lien on a debt-free house. Both FHA and conventional guidelines classify that as cash-out, per HUD’s archived refinance guidance on properties owned free and clear.
Homeowners assume “no mortgage” means an easier file. In practice, the lender still reviews credit, income, debt, and an appraisal, because no payment history exists to lean on.
Side-by-Side
| Factor | FHA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Maximum leverage | 80% of adjusted value | Set by GSE matrix; varies by occupancy |
| Credit floor | Lower floors than most conventional files | Generally higher; set by lender and findings |
| Mortgage insurance | Upfront plus annual premium | None; costs sit in loan pricing adjustments |
| Occupancy | Principal residence only | Primary, plus other occupancies at lower caps |
| Ownership test | Owned and occupied 12 months | Title seasoning; delayed-financing exception |
| Underwriting | Direct Endorsement, FHA appraisal | DU or LPA findings, value-focused appraisal |
| Loan limits | County limits apply | Conforming limits apply |
Two notes on the table. First, FHA’s ratios start at 31/43 (housing to total debt) with no compensating factors, and documented factors can stretch them as far as 40/50 at the top tier. Second, the conventional figures live in the Fannie Mae Eligibility Matrix, which sets maximum leverage by occupancy and unit count. Read it directly rather than trusting a summary, because it changes.
Reading the FHA Side More Closely
FHA cash-out 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 the new loan divided by the home’s value. For FHA, the value is the “adjusted value” under HUD guidelines, which is not simply the raw appraisal number. The 80% limit, like every FHA parameter, is subject to lender guidelines and a complete review of property type, leverage, and credit.
That 80% is not old news worth ignoring. HUD’s Mortgagee Letter 2019-11 cut the FHA cash-out maximum to 80 percent of adjusted value for case numbers assigned on or after September 1, 2019. The earlier cap was 85%. If you read a blog still quoting 85% or higher, it is out of date.
HUD explained the change in a press release. It said cash-out loans had grown to 64 percent of all FHA-insured refinance transactions, and it moved FHA closer to the GSEs’ cash-out maximum. That alignment matters for your decision. FHA does not let you pull more equity than conventional. Anyone telling you otherwise is describing a rule that no longer exists.
The 80% cap covers the whole new loan, not just the cash you receive. A financed upfront premium counts toward it. So do any closing costs you roll into the balance. The cash that lands in your account is smaller than the cap suggests.
FHA also carries two other structural items. Your loan must fit within the county loan limit, and county limits change every year, so check yours with a loan officer. And the home must be your principal residence. FHA cash-out is not a product for second homes or rentals.
How Mortgage Insurance Changes the Picture
FHA charges two kinds of mortgage insurance. The upfront premium is 1.75% of the base loan, and it is usually financed into the balance. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount, and LTV.
Duration matters here. On a thirty-year loan above 90% LTV, the annual premium lasts for the full term. At or below 90% LTV, it ends after eleven years. Since a free-and-clear cash-out tops out at 80%, the shorter schedule is the one that generally applies to this loan. Treat that as a program fact to confirm on your own file, not a promise.
HUD revises the annual schedule from time to time. Mortgagee Letter 2023-05 is one example, and the letter holds the current schedule. Lenders underwrite to HUD’s current Handbook 4000.1 and can add their own overlays, so two lenders can treat the same FHA file differently.
Conventional loans have no monthly mortgage insurance on a cash-out at this leverage. The cost shows up differently, as pricing adjustments built into the loan. Freddie Mac’s cash-out refinance product page names a credit fee tied to an indicator score and LTV that is priced into the loan. Those adjustments often grow when credit scores are lower or leverage is higher.
That is the structural difference. FHA charges a visible premium, upfront and annual. Conventional embeds its cost in pricing. Which one costs you less depends on your credit score, your LTV, and how long you keep the loan. A loan officer can generally lay both next to each other on the Loan Estimate, which is the standardized form lenders provide to borrowers. Compare the full terms, not a single line.
When FHA Cash-Out Is the Better Fit
FHA tends to win when your credit profile is the obstacle. The wholesale programs Lendmire places FHA loans with start at a 580 decision score.
It also tends to win when your debt-to-income picture is tight. FHA’s documented compensating factors can stretch ratios up to 40/50 at the top tier. Conventional findings can be less forgiving for borrowers carrying a lot of other debt.
A few situations point toward FHA:
- Past credit events. HUD’s waiting periods are two years from a Chapter 7 discharge and three years from a foreclosure. Those are HUD’s rules, not a promise from any lender.
- A borrower with solid income but a bruised score. Picture a homeowner who paid off the house years ago, carries some revolving debt, and has a score in the low 600s. FHA is often the workable path.
- A long-term owner-occupant. The 12-month ownership and occupancy test is easy for someone who has lived there for years.
One caution. FHA is not a better deal just because it is more flexible. The premium is a real, ongoing cost. If you could qualify conventionally with good pricing, the premium is a cost you may not need to pay.
When Conventional Cash-Out Is the Better Fit
Conventional tends to win when your credit is strong and you want to avoid a monthly insurance premium. With solid scores and moderate debt, pricing adjustments can be lighter than FHA’s premium stack, especially if you plan to hold the loan for many years.
It also wins on flexibility of property and occupancy. FHA is limited to your principal residence. Fannie Mae and Freddie Mac permit cash-out on other occupancies, with different caps. Those caps appear in the Fannie Mae matrix. If the home you own outright is a second home, conventional may be your only route.
Conventional is also the only route for a few edge cases:
- Recent all-cash buyers. Fannie Mae’s Selling Guide has a delayed-financing exception for buyers who paid cash. It requires an arm’s-length original purchase, with a settlement statement confirming no mortgage financing was used. The loan is still priced as cash-out. FHA has no equivalent in the material reviewed here. If you bought within the last 12 months, a standard FHA cash-out is generally not available, and a loan officer can confirm your situation.
- Inherited homes. Freddie Mac lists no seasoning requirement for eligible mortgages and inherited properties. FHA generally wants a period of owner occupancy, which an inherited, rented-out home may not have.
- Co-owner buyouts. Fannie Mae’s guide on limited cash-out transactions treats a buyout as limited cash-out if the property was jointly owned for at least 12 months. That is a different category from free-and-clear cash-out.
The tradeoff is simple. Conventional asks more of your credit profile. When you clear that bar, it often costs less to carry.
Don’t Mix Up These Look-Alikes
Several nearby products get confused with a free-and-clear cash-out.
- FHA Streamline. It requires an existing FHA loan and pays no cash back. A free-and-clear owner has no FHA loan to streamline.
- FHA rate-and-term. It reaches 97.75% on a principal residence occupied for the previous twelve months, but it only refinances an existing loan. With no loan, it does not apply.
- HELOC or home equity loan. These leave your first mortgage in place, as the CFPB’s Office of Research notes. On a debt-free home, they would become the only lien on the property, and they work differently from a new first mortgage.
- Delayed financing. It waives the title wait for cash buyers. It does not turn the loan into a rate-and-term refinance.
Whichever route you take, delayed financing is for buyers who used no mortgage financing to purchase, so there is no original loan balance to carry into your debt-to-income calculation. The new loan’s payment is the obligation that counts.
What a Free-and-Clear Cash-Out Really Does to You
You have no mortgage payment today. After this loan, you will. The new first mortgage adds a monthly obligation where none existed, plus closing costs. The CFPB notes that you often have to pay closing costs on a cash-out refinance.
Consider the practical picture. A debt-free home is a safety net. A lien changes that. If income drops, you now have a payment that can put the home at risk. That risk deserves honest weight, especially for retirees and anyone on a fixed income.
Use of proceeds matters too. The CFPB reports that borrowers often use cash-out proceeds to pay down credit card and auto debt, and that credit scores initially improved sharply, then gradually worsened. The agency also cautions that paying non-mortgage debts with mortgage debt can increase foreclosure risk. Converting unsecured debt into debt secured by your home trades flexibility for a lower balance cost, and that trade is not always wise.
Borrowers who may want to skip this loan entirely include:
- Owners planning to sell within a few years, since the closing costs and premiums have little time to pay for themselves.
- Retirees whose budgets cannot comfortably absorb a new payment.
- Anyone borrowing for spending that will not build value or reduce higher-cost debt.
How to Choose
Run through these questions in order.
1. Is the home your principal residence? If not, FHA is out. Look at conventional.
2. Did you buy within the last 12 months? If you paid cash, conventional delayed financing may fit. FHA generally will not.
3. Is your credit strong? If it is, get a conventional comparison. If it is borderline, FHA may be the only workable option.
4. How long will you keep the loan? Longer holds give FHA’s annual premium more time to add up. Shorter holds make the structural difference matter less.
5. How tight are your debts? If your ratios are stretched, FHA’s compensating-factor flexibility can matter.
If you pass the first four tests comfortably, ask for both Loan Estimates and compare full terms side by side. A broker is paid by the lender or by the borrower, and that compensation is disclosed on the Loan Estimate. Look at the whole document, not one number.
The Verdict
Neither loan wins automatically. FHA and conventional cash-out sit at the same leverage ceiling, so the real contest is about who qualifies and what the cost structure looks like. FHA widens the door for borrowers with weaker credit or tighter ratios, and it charges for that with a visible insurance premium.
For a free-and-clear owner, the bigger question is often whether to put a lien on a debt-free home at all. If you have a clear purpose, a budget that absorbs the payment, and a plan to hold the loan long enough, either option can work. If you are weighing a cash-out refinance on a home you own outright, Lendmire can help you compare the programs and the equity each one reaches. Call 828-256-2183 to talk through your options.
Key Terms Defined
Free and clear: A home with no mortgage or other lien against it.
Adjusted value: The value FHA uses to apply its cap, determined under HUD guidelines rather than taken straight from the appraisal.
LTV (loan-to-value): The new loan amount divided by the home’s value, shown as a percentage.
Delayed financing: A conventional exception that lets recent all-cash buyers borrow against the home without a long title wait.
Seasoning: The waiting period a lender requires before you can refinance, such as time on title or time as an owner-occupant.
Loan Estimate: The standardized form that lays out a loan’s terms and costs, so you can compare offers.
Frequently Asked Questions
Can I do a cash-out refinance if I own my home with no mortgage?
Yes, under both FHA and conventional programs. Both classify a new first mortgage on a debt-free home as cash-out. The lender still reviews your credit, income, debts, and appraisal, and the new loan must be the first lien. Eligibility remains subject to lender guidelines and full file review.
Do I need an existing FHA loan to use FHA cash-out?
No. Only the FHA Streamline requires an existing FHA loan, and it pays out no cash. A standard FHA cash-out works for a home with no mortgage, as long as you own and occupy it as your principal residence for 12 months before the case number.
Does FHA let me take out more cash than conventional?
Not by default. FHA’s cap is 80% of adjusted value, and HUD described that change as aligning FHA with the GSEs’ cash-out maximum. Conventional caps depend on occupancy and unit count in the Fannie Mae matrix. The cap covers the whole loan, including any financed premium.
What if I bought my home less than a year ago?
FHA cash-out generally needs 12 months of ownership and occupancy, so it is usually unavailable. If you paid cash, conventional delayed financing may apply, though it is still priced as cash-out. A loan officer can confirm how your purchase and title history fit each program.
Is a cash-out refinance the same as a HELOC?
No. A cash-out refinance replaces your first mortgage with a new, larger one. A HELOC or home equity loan leaves your first mortgage in place and adds a second lien. On a debt-free home, the cash-out creates the only mortgage, while a HELOC sits alongside nothing.
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.
Get Started
Ready to find the right loan for you?
See your offer in seconds. No credit pull, no obligation.
Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. HUD HOC Reference Guide, Refinances
2. Fannie Mae Eligibility Matrix
3. HUD Mortgagee Letter 2019-11
5. HUD Mortgagee Letter 2023-05
6. Freddie Mac cash-out refinance product page
7. Fannie Mae Selling Guide B2-1.3-03
8. Fannie Mae Selling Guide B2-1.3-02
9. CFPB Office of Research blog (cash-out 2013–2023)
10. CFPB Ask CFPB (HELOC alternatives)
11. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
This article is part of Lendmire’s FHA cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Lenders Underwrite an FHA Cash-Out Refinance Versus Conventional Cash-Out Limits · FHA Cash-Out Refinance vs Conventional Cash-Out With a Several-Month-Old Appraisal · How Lenders Underwrite an FHA Cash-Out Refinance at Maximum LTV on a Primary Home
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
Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.