The Quick Read: It depends on your current mortgage and how much cash you need. An FHA cash-out refinance replaces your loan with a new, larger one and reaches up to 80% of the home’s value. A home equity loan leaves your first mortgage alone and adds a second loan behind it. The refinance suits borrowers who want one payment and have a first mortgage worth replacing. The home equity loan suits borrowers who want to keep the first mortgage as it is.
The one-paragraph honest answer is that neither product wins on “maximum cash” every time. The FHA cash-out has a firm ceiling. The home equity loan’s ceiling belongs to whichever lender writes it, and that varies widely. So the better path depends on how much equity you have, what your current loan looks like, and how much you actually need.
FHA cash-out estimate
Seeded with an example value, a balance to match, and a round cash request; change any field.
Editable benchmark: 7.32% as of October 22, 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
| Factor | FHA Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| What happens to your first mortgage | Paid off and replaced | Stays in place |
| Number of loans afterward | One | Two |
| Leverage | Up to 80% of value | Set by the lender |
| Credit floor | 580 decision score (network) | Set by the lender |
| Mortgage insurance | Upfront and annual premiums | Not FHA-insured |
| Occupancy | Primary residence only | Lender-defined |
| Ownership history | Owned and occupied 12 months | Lender-defined |
| Documentation | Full FHA file and appraisal | Varies by lender |
| Cash disbursement | Lump sum at closing, after payoff | Lump sum upfront |
Two cautions on that table. Every FHA figure is subject to lender guidelines and a full file review, and nothing here is a commitment to lend. The home equity column stays vague on purpose, because those products are not FHA-insured, and each lender sets its own rules.
How the Two Products Are Built
An FHA cash-out refinance is a first-lien loan. It pays off whatever you owe now, covers closing costs, and sends the remainder to you as cash. Across the wholesale programs Lendmire places FHA files with, the FHA cash-out program reaches 80% of the home’s value, on a home you have owned and occupied for 12 months before the case number is assigned. Because HUD’s handbook text can change, confirm the occupancy and payment-history rules against the current Handbook 4000.1 and the HUD Mortgagee Letters index.
A home equity loan is a second mortgage. It is closed-end, so you receive the whole amount upfront and cannot redraw. Your existing FHA loan, with its current terms, stays right where it is. FHA does not insure the new loan. A separate lender sets its own credit, income, and combined-leverage rules, and files a junior lien behind the FHA mortgage.
That structural split drives everything else. One path rewrites your primary loan, and the other stacks a new loan on top of it. Lendmire’s FHA cash-out refinance program covers the first path. The second is arranged outside the FHA program.
The 80% Ceiling and What It Means for “Maximum Cash”
The 80% cap is the number that defines FHA cash-out. HUD’s Mortgagee Letter 2019-11 lowered the maximum loan-to-value and combined loan-to-value from 85 to 80 percent of the adjusted value, citing risk to the FHA insurance fund from rising insured balances. Older pages still show 85%. Do not rely on them.
The cap is on combined leverage. That means the FHA first mortgage plus any other lien cannot exceed 80% of the appraised value. Piling a second loan on top does not get around it.
Here is how to think about the cash you walk away with. The 80% base loan has to cover your payoff, the closing costs rolled in, and your cash. The 1.75% upfront premium is calculated on the base loan and financed on top of it. Whatever is left after the payoff and costs is the cash in your hand. A home with modest equity might produce very little cash after the payoff, while a home with substantial equity can produce a lot. The appraisal sets the value, so it decides the outcome as much as your balance does.
A home equity loan works differently. Its limit depends on the lender’s combined-leverage rules, which differ from lender to lender. Some set the cap above 80% of value, some below. If you have a large amount of equity and a lender with a generous cap, the home equity loan can sometimes deliver more cash than FHA cash-out would. The reverse is also true if the lender is conservative.
Run the logic on a hypothetical. Picture a borrower whose FHA balance is already near 60% of the home’s value. An FHA cash-out at 80% leaves room for roughly 20% of value, before costs. A home equity lender with a stricter cap might leave less room, and one with a looser cap might leave more. The only way to know is to compare actual quotes against your actual appraisal. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
The Existing-Mortgage Test
The most important question is whether your current first mortgage is worth keeping. A cash-out refinance replaces the entire loan, so the new terms apply to your whole balance, not just the new money. A home equity loan touches only the new money.
If your current terms are favorable, replacing them to pull out cash means giving up something you may not get back. If your current terms are not especially valuable, the refinance costs you little on that front, and consolidating into one payment may be convenient.
The CFPB’s guide on using home equity notes that a cash-out refinance may lengthen the payoff term and raise the monthly payment, since a larger loan replaces the current one. A home equity loan, by contrast, adds a second payment while the first stays unchanged. The CFPB also notes that second mortgages often carry higher interest rates than first mortgages, so the extra loan can cost more per dollar borrowed even when it leaves the first loan alone.
Think of it as a tradeoff in what you put at risk. The refinance reprices your whole loan. The second loan reprices only the new piece, usually at a different price than the first.
When an FHA Cash-Out Refinance Is the Better Fit
An FHA cash-out tends to be the stronger choice in these situations:
- Your first mortgage has no special value. If there is little to lose by replacing it, one new loan keeps things simple.
- Your credit is in the mid-range. The wholesale programs Lendmire works with start at a 580 decision score for FHA. HUD itself sets a floor of 500, with scores of 500 to 579 limited to 90% LTV, but that limit sits above the 80% cash-out cap and lender requirements are usually stricter than HUD’s floor. Second-lien lenders often set a higher bar, so FHA can be the more accessible route.
- You want one payment. Two loans mean two payments, two servicers, and two sets of terms.
- Your documentation fits the FHA mold. FHA ratios start at 31/43 for housing and total debt, and documented compensating factors can stretch them to 40/50 at the top tier. The automated finding governs most files.
- You plan to stay in the home. The upfront cost of replacing the whole loan is easier to absorb over a longer stay.
Consider an owner-occupant who has lived in the home for several years, has a mid-range score, and carries a first mortgage with unremarkable terms. For that borrower, a single new loan up to 80% of value is a clean answer.
The costs are real, though. Mortgage insurance applies to the entire new balance. Per HUD Mortgagee Letter 2023-05, the upfront premium is 1.75% of the base loan, and it is typically financed. The annual premium runs 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 term. At or below 90% it ends after eleven years. Since a cash-out tops out at 80%, the eleven-year schedule is the one that applies at the cap. These are program facts, not a price quote.
Eligibility has gates too. At least one borrower must have owned and occupied the home as a principal residence for the 12 months before the case number is assigned. Payment history on the existing mortgage matters as well. Investment properties and second homes do not qualify for FHA cash-out, because occupancy decides the leverage.
When a Home Equity Loan Is the Better Fit
A home equity loan tends to win in a different set of circumstances:
- Your current first mortgage is worth protecting. If its terms are hard to replace, leaving it untouched is the whole point.
- You need a smaller amount. Borrowing only what a project requires, without resetting a large balance, can keep total cost lower.
- You have substantial equity and a lender with a generous combined-leverage cap. In that case the second loan may reach more cash than the 80% FHA ceiling allows. Some consumer-lender explainers describe home equity products reaching a higher share of equity than cash-out refinances, though caps vary by lender.
- You don’t meet the FHA occupancy or payment-history tests. The 12-month ownership and occupancy requirement is a gate. A home equity lender may have different standards.
- You want fixed, predictable repayment on the new piece. The CFPB notes a home equity loan usually has a fixed rate, though some are adjustable, so confirm which you are being offered.
Picture a borrower who owns a home with a long-held FHA loan they like, needs a defined sum for a renovation, and has plenty of equity. Leaving the first loan alone and adding a closed-end second can be the more sensible structure, as long as the lender’s cap and credit rules fit.
The downsides are worth stating plainly. You carry two payments. The second lender is separate and sets its own qualifying rules. And the CFPB warns that if you cannot repay a home equity loan, you could potentially lose your home. That risk exists with both products, since both use the house as collateral.
What Happens If You Already Have a Second Lien
This edge case trips people up. If you have a second lien and want to keep it through an FHA cash-out, it must be subordinated to the new first mortgage. That requires the second-lien holder’s cooperation, and the holder can refuse. The combined-leverage cap of 80% still applies to the total.
This is where a refinance can become more complicated than it looks. If a subordination is not available, the second lien may need to be paid off from the proceeds, which cuts into your cash. Anyone starting from a home equity loan already in place should raise this early.
Costs, Risk, and Sizing the Draw
Neither product is free. A cash-out refinance replaces the whole mortgage, so it carries full refinance costs plus the upfront premium. Home equity loans are generally cheaper to close, though that varies by lender. Compare the Loan Estimate for each path line by line before deciding, rather than relying on headline figures alone.
Several risks apply to both paths:
- Less equity. The Federal Reserve notes that taking out equity means owning less of the home, which leaves less cash after a sale.
- Debt conversion. Using home equity to pay off other debt does not eliminate it. As the CFPB puts it, you are taking out one loan to repay another, and turning unsecured debt into mortgage debt puts the home behind it.
- Over-borrowing. Taking more than you need means paying for it, and paying mortgage insurance on it in the FHA case.
There is also a safeguard worth knowing. On a refinance or home equity loan on your primary residence, you generally have three business days to cancel. A borrower with a genuine personal financial emergency can waive it.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Combined loan-to-value (CLTV): The total of all loans against the home divided by its appraised value.
Adjusted value: The appraised value figure the FHA leverage cap is applied to.
Subordination: A recorded agreement that lets an existing second lien stay behind a new first mortgage.
Minimum decision credit score: The score a lender uses to decide whether a borrower meets FHA’s credit rules.
Closed-end loan: A loan paid out as one lump sum, with no ability to borrow more later.
Upfront mortgage insurance premium: A one-time FHA charge of 1.75% of the base loan, usually financed into the balance.
Practical Checklist Before You Choose
1. Confirm how long you have owned and lived in the home, and whether your payment history is clean.
2. Get an appraisal-based idea of your value, since it decides the cash ceiling.
3. List every lien on the property, including any second.
4. Decide how much cash you actually need, not the most you could get.
5. Ask for a Loan Estimate on each path and compare costs line by line.
6. Check whether your current first mortgage has terms worth keeping.
The Balanced Verdict
For maximum cash with a single, simplified loan, an FHA cash-out refinance is a strong option when your first mortgage has little special value, your credit sits in the middle range, and you meet the 12-month ownership test. For preserving a first mortgage you like, borrowing a defined amount, or reaching more equity than 80% allows, a home equity loan can be the better tool, provided you accept a second payment and a second lender.
This is a genuine toss-up for many borrowers. It turns on the terms of your current loan, the size of your equity, and what each lender will actually offer. Because the home equity side varies so much, the only reliable comparison is real quotes on both.
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.
Frequently Asked Questions
Does FHA offer its own home equity loan?
No. FHA insures first mortgages, including cash-out refinances. A home equity loan is a separate second mortgage from a different lender, and FHA does not insure it. You can still take one behind an existing FHA loan, depending on that lender’s rules.
Which one gives me more cash?
It depends on your equity and the lender. The FHA cash-out stops at 80% of the adjusted value, and that base loan has to cover your payoff and rolled-in costs before any cash reaches you. The upfront premium is financed on top of it. A home equity lender sets its own combined-leverage cap, which may be higher or lower. Compare actual offers against your appraisal.
Can I do both at once?
You can keep an existing second lien through an FHA cash-out only if the holder agrees to subordinate it. The 80% combined cap still applies to the total. If the holder refuses, the second may need to be paid off, which reduces your cash.
Do I need to have lived in the home for a certain time?
For an FHA cash-out, at least one borrower must have owned and occupied the home as a principal residence for the 12 months before the case number. Payment history on existing mortgages also matters. Confirm the current rules in HUD’s Handbook 4000.1, since the details can change.
Is the cash from either product taxable?
For questions about how loan proceeds are treated for tax purposes, the IRS and your tax adviser are the right sources.
For your own numbers, request a scenario review with Lendmire.
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.
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References
1. HUD Mortgagee Letters index
2. HUD Mortgagee Letter 2019-11
3. CFPB, using home equity to meet financial needs
4. HUD FHA Answer Center, minimum credit score
5. HUD Mortgagee Letter 2023-05
6. CFPB, second mortgage / junior lien
7. Federal Reserve, refinancings
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 Appraised Value Sets the Loan on an FHA Cash-Out Refinance · Can You Do an FHA Cash-Out Refinance Within the Seasoning Period? · How to Find Your Maximum FHA Cash-Out Refinance Amount
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.