The Quick Read: It depends on your credit, your equity and the loan you hold today. On a one-unit primary home, both paths cap out at 80% of the home’s value, so the real differences are mortgage insurance, credit treatment and what you are leaving behind. FHA tends to suit borrowers with thinner credit. Conventional tends to suit borrowers with strong credit and a lot of equity. Neither one pays the hospital. Each hands you cash, and you decide where it goes.
A cash-out refinance replaces your current mortgage with a bigger one and gives you the difference in cash. The Consumer Financial Protection Bureau notes that you often pay closing costs on top of that. A medical bill is not part of the loan. It is just one place the money can go.
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.
This article is the referee’s view of both.
Side-by-Side
On a one-unit primary residence, the leverage ceiling matches. The other rows are where the two diverge.
| Factor | FHA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Maximum leverage | 80% LTV | 80% LTV (one unit) |
| Two to four units | Primary residence only | 75% LTV |
| Credit floor | 580 decision score at the network | Set by lender and automated findings |
| Mortgage insurance | Upfront plus annual premium | Depends on lender and structure |
| Occupancy | Principal residence only | Wider range, lower leverage |
| Ownership test | Owned and lived in 12 months | Seasoning and time on title apply |
Two things in that table need unpacking. The cap on FHA cash-out leverage comes from HUD Mortgagee Letter 2019-11, which lowered the earlier limit and applies it to the adjusted value of the home. The conventional figures come from the Fannie Mae Eligibility Matrix, which sets a higher cap for a one-unit primary home than for two to four units.
Every cap in the table leaves you with at least 20% equity in the house. The CFPB’s guide, Using Your Home Equity, says lenders typically want you to keep 10% to 20% of your home’s value, so the rule is not unusual.
How Each Loan Works, Step by Step
The mechanics are close to identical. What changes is the rulebook around them.
1. Eligibility. For FHA, you generally need to have owned and lived in the home for 12 months before the case number is assigned. Conventional loans have their own seasoning and title tests, and the details vary by lender.
2. Appraisal. A full appraisal sets the value. A low appraisal shrinks your cash or erases it.
3. Loan sizing. The new loan must pay off your old mortgage and any financed costs. Whatever room is left under the 80% cap is your available cash.
4. Underwriting. The lender reviews income, assets, credit and debts. On a conventional loan, the Fannie Mae matrix ties minimum reserves to cash-out files where the debt-to-income ratio runs above 45%.
5. Closing and funding. The new loan pays off the old one. You receive the cash and decide how to spend it.
Closing costs reduce your cash when they are financed into the loan. Plan for that before you pick a number to borrow.
When FHA Is the Better Fit
FHA fits you best when your credit is middling, your debts are heavy, or both. Across the wholesale programs Lendmire places FHA files with, a 580 decision score is the starting point. FHA also allows debt ratios to stretch from 31/43 up to 40/50 when compensating factors are documented. Those ratios compare your housing cost and total debts to your income.
Medical debt is a case where FHA can help. HUD’s older Mortgagee Letter 13-25 says FHA does not require collection accounts to be paid off as a condition of approval. It also excludes medical collections from its collections guidance. That letter has since been folded into the handbook, so confirm current treatment with a loan officer. Individual lenders can add their own overlays.
The practical point: an unpaid medical collection does not by itself block an FHA loan. Paying it from your cash-out is your choice, not an FHA requirement.
FHA also makes sense if you already hold an FHA loan and want to stay in that system. Moving one FHA loan into another can bring a partial credit on the upfront premium. A credit is not a cash refund, though.
The cost of FHA is mortgage insurance. There is an upfront premium of 1.75% of the base loan, usually financed into the balance. There is also an annual premium between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. 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. Cash-out loans often sit near the 80% cap, which matters for how long the premium runs. These are program facts, subject to lender guidelines and full file review.
When Conventional Is the Better Fit
Conventional fits you best when your credit is strong and you want to avoid a permanent insurance layer. Mortgage insurance on a conventional loan depends on the lender and the structure of the loan, so ask how it applies to your file. Avoiding the FHA-style upfront premium can change the long-term cost picture, especially if you plan to keep the loan for many years.
Conventional is also the natural exit from an FHA loan. If you hold one today, price both paths side by side before you choose.
There is one catch to know about. If your new loan pays off a second mortgage that was not used to buy the home, Fannie Mae’s Selling Guide treats the file as a full cash-out, not a limited one. A “limited” refinance gets friendlier treatment, so that distinction matters if you carry a second lien.
Conventional programs also cover second homes and rentals, though at lower leverage. Occupancy decides the leverage, and this comparison stays on your primary home.
The tradeoff: a conventional file leans harder on credit and ratios. A borrower near the edge may find FHA more workable.
Is Cash-Out Even the Right Tool?
Sometimes it is not. A cash-out refinance turns what is often unsecured medical debt into debt secured by your home. If you fall behind, the lender can foreclose. A hospital bill on its own generally cannot do that. The CFPB’s equity guide stresses that you are converting equity into a debt you must repay, and that your payment may rise and your payoff time may stretch.
Consider these alternatives before you commit:
- Payment plans or bill negotiation. Many providers offer interest-free plans or financial assistance. Ask first.
- A HELOC or home equity loan. The CFPB says a second mortgage leaves your existing first mortgage in place. It also says a cash-out refinance may be more or less expensive than a HELOC, depending on the terms. If your current first mortgage is a good one, giving it up has a cost.
- A smaller targeted loan. Borrowing only the amount you need beats borrowing the maximum.
A cash-out refinance makes the most sense when the bill is large, the current mortgage is not worth keeping, and you can carry the new payment comfortably. The CFPB also found that cash-out borrowers saw an initial credit-score bump, followed by gradual worsening, in its cash-out research. Don’t count on a score boost as a reason to borrow.
Medical Debt and Your Credit File
Many borrowers assume federal rules wiped medical debt off credit reports. They did not. A Congressional Research Service overview says a federal court vacated the CFPB’s medical-debt reporting rule in July 2025, finding it exceeded the agency’s authority. The same overview notes that the three credit bureaus voluntarily stopped reporting paid medical debts, medical debts under a year old, and medical debts under $500. State laws vary, so check yours.
For underwriting, this means an open medical collection may still appear on your file. Underwriters review it. Whether it matters depends on the program and the lender. FHA’s collections guidance excludes medical items. Conventional files run through automated findings, and the lender’s own overlays can add conditions.
Quick Scenarios
Run through a few modeled situations. None of these are real files.
The urgent bill, strong credit. Picture a homeowner with a high score and plenty of equity, who has held the home for years. Conventional deserves a close look here, because the borrower may avoid FHA-style premiums.
The urgent bill, weaker credit. Say you hold a score near the lower end of what lenders accept and carry other debts. FHA’s wider ratios and 580 floor may be the only path that works.
A current FHA borrower. Consider an owner with an existing FHA loan and 12-plus months in the home. Price an FHA cash-out against a conventional one. The insurance structure is the swing factor.
A recent buyer. Suppose you bought the home within the last year. FHA’s 12-month ownership and occupancy test can block you. Conventional seasoning rules can too. In that case, a HELOC or a payment plan may be the more realistic route.
An uncertain or ongoing bill. If you don’t know the final amount, don’t borrow the maximum on a guess. A smaller loan, or a line of credit, can fit better.
Whichever scenario fits, remember the appraisal: the home’s appraised value sets how much you can borrow. Ask your loan officer what value the file needs before you order anything.
Verdict
Neither loan wins on every file. FHA tends to win on flexibility, since it takes lower scores and heavier debt loads. Conventional tends to win on long-term insurance cost for borrowers with strong credit. Both cap at 80% on a one-unit primary home, so equity does not separate them.
The bigger question is whether to convert medical debt into mortgage debt at all. If you decide yes, compare a Loan Estimate for each path. Compare the whole package, not one line.
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.
Key Terms Defined
Cash-out refinance: A new mortgage that pays off your old one and gives you the difference in cash.
LTV (loan-to-value): Your loan balance divided by your home’s value, shown as a percentage.
Adjusted value: The appraised value as HUD rules adjust it, which is the number FHA applies its 80% cap to.
Seasoning: The waiting period a lender requires before you can refinance, such as time on title.
Mortgage insurance premium (MIP): The FHA charge that protects the lender, with an upfront part and an annual part.
DTI (debt-to-income): Your monthly debts compared with your monthly income.
Frequently Asked Questions
Can I use cash-out proceeds to pay a medical bill?
Yes. The loan hands you cash and does not restrict how you spend it. The loan does not pay the hospital directly, so you send the payment yourself. Keep in mind that doing so converts unsecured debt into debt secured by your home.
Do I have to pay off my medical collection before I qualify for FHA?
No, HUD’s collection guidance does not require payoff and excludes medical collections from its collections test. Lenders may add their own conditions, and the guidance has moved into the handbook since that letter. Ask a loan officer how current rules apply to your file.
Is the FHA cash-out limit 97.75%?
No. That higher figure belongs to FHA rate-and-term refinances on a principal residence. The FHA cash-out tops out at 80% LTV on a home you have owned and lived in for 12 months before the case number. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Is a cash-out refinance cheaper than a HELOC?
A HELOC leaves your current first mortgage alone, which helps if that mortgage is worth keeping. A cash-out refinance replaces that first mortgage, so the comparison depends on what your existing loan carries.
Can I switch from FHA to conventional to take cash out?
Yes, if you qualify. Eligibility depends on lender guidelines, credit, equity and a full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing 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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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. Consumer Financial Protection Bureau
2. HUD Mortgagee Letter 2019-11
3. Fannie Mae Eligibility Matrix
4. CFPB: Using Your Home Equity guide
7. CFPB: CFPB Report Finds Cash Out Mortgage Refinance Borrowers Improve Credit Scores
8. Congressional Research Service: Medical Debt and Credit Reporting (IF12169)
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: FHA Cash-Out vs Conventional Cash-Out for a Divorce Buyout · FHA Cash-Out Refinance vs Conventional Cash-Out Minimum Credit Score · FHA Cash-Out vs Conventional Cash-Out for a Homestead Spouse
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.