The Quick Read: On a home you live in, both loans cap the new mortgage at about 80% of the home’s value. So the real choice is credit flexibility against mortgage insurance cost. FHA tends to fit borrowers with thinner credit who can live with the insurance premium. Conventional tends to fit stronger credit, and it is usually the only route when the next property is a second home or a rental.
In short, pick FHA if your credit score or debt load would make a conventional file hard. Pick conventional if your credit is solid and you want to avoid FHA’s premiums. Either way, the cash is only a source of funds. The next lender will still underwrite your new, larger payment.
Key Takeaways
- A cash-out refinance replaces your current mortgage with a bigger one and hands you the difference.
- FHA reaches 80% loan-to-value (LTV) on a home you have owned and lived in for 12 months before the case number.
- FHA carries an upfront premium plus an annual premium. Conventional at or below 80% LTV typically does not carry private mortgage insurance.
- The new payment counts in your debt ratios on the next purchase. That can shrink what you qualify for.
- FHA cash-out only works on your own principal residence. It cannot be taken on a second home or a rental.
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.
Side-by-Side
Here is how the two loans line up on the features that matter for a down-payment plan. All figures are subject to lender guidelines and full file review.
| Factor | FHA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Max leverage (primary home) | 80% LTV | 80% (1 unit); 75% (2-4 units) |
| Credit floor | 580 decision score | Set by lender; often higher |
| Mortgage insurance | Upfront 1.75% plus annual | Typically none at 80% or below |
| Occupancy | Principal residence only | Primary, second home, investment |
| Ownership history | Owned and lived in 12 months | On title six months |
| Existing loan age | No separate age test | First mortgage 12+ months old |
| Debt ratios | 31/43 base; up to 40/50 | Automated findings; 45% DTI flags reserves |
Two notes on the table. First, the conventional figures are the primary-residence limits in Fannie Mae’s eligibility matrix. Second homes and rentals carry lower cash-out limits, and the matrix is where to check them. The exact numbers move, so ask a loan officer for current ones.
How a Cash-Out Refinance Actually Produces Down-Payment Cash
A cash-out refinance pays off your current mortgage and writes a new, larger one. You keep the difference. The Consumer Financial Protection Bureau notes that your monthly payment may rise and your payoff timeline may stretch.
The 80% cap covers the whole new loan. It is not 80% of your equity in cash. Picture a home with an existing loan at 50% of its value. An 80% cap leaves room for up to 30% of value on top of the payoff. Closing costs and prepaid items come out of that room first. What remains is your cash.
That is why cash in hand lands below the headline equity number. Costs come out of proceeds, even when you roll them into the loan. Rolling costs in does not make them disappear. It only lowers the cash you walk away with.
When FHA Cash-Out Is the Better Fit
FHA is the stronger pick when credit or debt load is the obstacle. Across the wholesale programs FHA files go through, the floor starts at a 580 decision score. Ratios start at 31/43 (housing to total debt) and can stretch to 40/50 with documented compensating factors. Those factors might be savings, a solid payment history, or low payment shock.
Here are the borrower profiles where FHA often earns its place:
- Credit is rebuilding. A conventional file may price badly or stall. FHA’s lower floor can keep the door open.
- Debt-to-income is tight. The 40/50 ceiling with documented factors gives more room than many conventional files allow.
- The home is your current primary residence. FHA cash-out works there and nowhere else.
- You have owned and lived there for a full 12 months. The clock runs back from FHA case number assignment, and appreciation does not shorten it.
Now the costs. FHA charges an upfront premium of 1.75% of the base loan, usually financed. It also charges an annual premium between 0.15% and 0.75% of the balance. The exact annual figure depends on term, loan amount and LTV. On a thirty-year loan above 90% LTV, the annual premium lasts the full term. At or below 90% LTV, it ends after eleven years. A cash-out loan capped at 80% LTV sits at or below that 90% line. Still, those premiums are a real cost you carry for years.
There is also a history behind the cap. HUD said it lowered the cap from 85% to 80% to reduce risk to the FHA insurance fund. HUD also noted this aligned FHA with the government-sponsored enterprises’ limit. So the old “FHA lets you borrow more” idea no longer holds on a primary home.
The one-FHA-loan problem
Here is the catch for a down-payment plan. HUD’s Handbook 4000.1 generally allows one FHA-insured principal residence per borrower. The handbook lists named exceptions, such as a job relocation to a new home more than 100 miles away. HUD also will not insure a loan designed to use FHA insurance to acquire investment properties.
So if your next property is meant to be another FHA purchase, an FHA cash-out on your current home may not clear the way. Have a loan officer check the exceptions against your situation before you commit. If the next property is a rental, occupancy decides the leverage, and that route is a different conversation.
When Conventional Cash-Out Is the Better Fit
Conventional wins when your credit is strong and you want to skip FHA’s premiums. At or below 80% LTV, a conventional loan typically carries no private mortgage insurance. That can make the total cost of carrying the loan lower over time, though the pricing differs by lender and file.
Conventional also gives you more paths for the next property. FHA cash-out cannot be taken on a second home or a rental. Conventional can, at lower leverage than the primary-residence limit. The next purchase itself usually runs on a conventional loan if it is a second home.
The timing rules are firmer here. Under the Fannie Mae Selling Guide, these generally apply:
- An existing first mortgage you are paying off must be at least 12 months old, measured note date to note date.
- At least one borrower must have been on title for six months before the cash-out loan disburses.
- A property listed for sale must be off the market by disbursement.
- On automated casefiles, a debt-to-income ratio above 45% triggers a six-month reserve requirement. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Reserves are savings left in the bank after closing. Six months of them means your payment amount times six. That is real money to hold back, and it competes with the down payment you are trying to build.
Two edge cases are worth knowing. A free-and-clear home still counts as cash-out when you put a new loan on it. And a cash purchase may qualify for a delayed-financing exception. Neither is common, but both can come up for owners who paid cash.
The limits of conventional
Conventional is stricter on borrowers with weaker files. Credit minimums vary by lender, and some set a higher floor than the program minimum. Debt ratios are judged by automated findings, with less room to stretch than FHA’s documented compensating factors. If your file is strong, that is fine. If it is borderline, FHA’s flexibility may matter more than the insurance premium.
A Worked Example Without Dollars
Say your home has an existing loan at 50% of its value. You want as much cash as possible for the next property.
Under either loan, the new mortgage tops out near 80% of value. That leaves up to 30% of value for costs and cash. Closing costs and any prepaid items come out of the 30% first. The remainder is your cash to buy with.
Now the second step, which many borrowers miss. The new loan is larger than the old one, so your payment on the current home usually rises. The next lender counts that higher payment in your debt ratios. You may qualify for less than you planned.
Walk through it in order:
1. Confirm the home is eligible: owned and lived in long enough for FHA, or the title and loan-age tests for conventional.
2. Get a value, since the appraisal sets the cap.
3. Price the new loan and look at the Loan Estimate, which shows your actual costs.
4. Close, and let the proceeds pay off the old loan and costs first.
5. Keep the cash documented. The next lender will want to see where the down payment came from.
Decision Matrix: What Is the Next Property?
The next property type changes which loan fits.
| Next property | FHA cash-out | Conventional cash-out |
|---|---|---|
| Another primary home | Possible; one-FHA-loan rule applies | Works; no insurance premium at 80% or below |
| Second home | Cash-out not available on it | Lower leverage than primary |
| Rental | Not available | Lower leverage; stricter rules |
The next purchase itself may still be a conventional loan. Only the cash-out loan on your own home is at issue here.
Risks and When to Choose Neither
You are putting your home behind a larger loan. If the next property stumbles, the home you live in is still on the hook. The CFPB also reports that cash-out borrowers’ credit scores rose right after closing and then slipped gradually.
Weigh two alternatives. A home equity line of credit or a home equity loan leaves your first mortgage alone, which matters if your existing loan is attractive. A cash-out replaces it. The CFPB frames this as a tradeoff, and a cash-out may cost more or less than a line of credit depending on the terms. And if you can wait and save, a smaller refinance or none at all may be the cleaner path.
Key Terms Defined
Cash-out refinance: A new, larger mortgage that pays off your current one and gives you the difference in cash.
Loan-to-value (LTV): The loan balance divided by the home’s value, shown as a percentage.
Case number: The FHA file number that starts the occupancy and value clocks.
Compensating factors: Strengths in your file, like savings or low payment shock, that can offset a higher debt ratio.
Reserves: Savings left after closing, counted in months of your payment.
Mortgage insurance: A fee that protects the lender on higher-risk loans. FHA charges an upfront and an annual premium.
The Balanced Verdict
Neither loan is the winner. FHA is the better fit when credit or debt load limits your options and you accept the premiums. Conventional is the better fit when your file is strong and you want to avoid them, or when your next property is a second home. The one-FHA-loan rule can quietly decide the question if the next purchase is also an FHA loan.
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. Every figure here is subject to lender guidelines and full file review, and none of it is a commitment to lend.
Frequently Asked Questions
Which loan lets me take more cash out of my home?
On a primary residence, they are close. FHA reaches 80% LTV, and a conventional one-unit home also reaches 80%. A two-to-four unit conventional home is lower, at 75%. The cash you receive depends on your payoff, your costs and the appraised value. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Can I use FHA cash-out to buy a rental or second home?
You can use the cash for it, but you cannot take FHA cash-out on a rental or second home. FHA cash-out is for the home you live in. Conventional cash-out is available on second homes and rentals at lower leverage than the primary-residence limit.
Do I need an FHA loan now to refinance into FHA?
No, your current loan does not have to be FHA. A borrower with a conventional loan can refinance into an FHA cash-out loan if the home meets the 12-month own-and-occupy test and the file qualifies. The reverse also works, moving from FHA to conventional. Each direction is a new loan with its own file review.
Will the cash-out payment hurt my next mortgage application?
Often, yes, at least somewhat. The next lender counts the new, larger payment on your current home in your debt ratios. That can lower what you qualify for. Run both loans together before you refinance.
What if I have owned my home for less than 12 months?
FHA cash-out is not available. Appreciation does not shorten the clock. Conventional has its own test: at least one borrower on title for six months, and an existing first mortgage that is at least 12 months old.
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 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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References
1. Fannie Mae Eligibility Matrix
2. Consumer Financial Protection Bureau guide on using home equity
3. HUD press release on the FHA cash-out cap
5. Fannie Mae Selling Guide, Cash-Out Refinance Transactions
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 to Build an Emergency Fund · How to Get an FHA Cash-Out When Conventional Costs Too Much · How an FHA Cash-Out Sets Up a Later Conventional Refinance
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.