FHA Cash-Out vs Conventional Cash-Out on a Condo Not FHA-Approved

The Quick Read: The building decides this choice as much as you do. A condo missing from the FHA list can still get an FHA cash-out loan, but only through a one-unit review that the building must pass. Conventional cash-out uses a different building review. FHA fits owners with thinner credit and a building that clears the one-unit review. Conventional fits owners with stronger credit, though a true cash-out generally still needs a building that passes the lender’s review.

The two loans test two things: you and the building. You can pass the first test and still fail the second. Most of this article is about the second.

Side-by-Side

The table shows how the two paths differ on the points that matter most for a condo outside the FHA list. Every figure is subject to lender guidelines and full file review, and none of it is a commitment to lend.

Two rows deserve a closer look. Mortgage insurance is the cost trade. Occupancy is the flexibility trade.

Key Terms Defined

Single-unit approval: FHA’s way of insuring a loan on one condo unit when the whole project is not on HUD’s approved list.

Project approval: A review of the entire building. An approved project can host many FHA loans.

Cash-out refinance: A new, larger mortgage that pays off your current one and hands you the difference in cash.

Loan-to-value (LTV): Your loan balance divided by your home’s appraised value.

Mortgage insurance premium: A charge that protects the lender if the loan fails. FHA collects one upfront and one every year.

Two Gates: You and the Building

Every condo cash-out clears two gates. The first is personal: your credit, income, debt ratios, equity and how long you have lived there. The second is the building. Its finances, insurance, ownership mix and condition get reviewed too.

Preparing for the first gate is only half the work. A building that fails the second gate stops the file.

“Not FHA-approved” sounds final. It is not. HUD says FHA insures condo loans in approved projects, and also in projects that are not approved but meet single-unit approval requirements. The building must be complete and ready for occupancy. It needs at least five units. It cannot be a manufactured home project. And it must meet a subset of the full requirements: a limit on how many units carry FHA loans, an owner-occupancy share, and sound financial condition.

That five-unit floor matters. A four-unit condo building cannot use single-unit approval, so FHA is off the table for it. Conventional review may still work for a building that small.

The FHA concentration limit is the other trap. HUD’s published rule on condo project approval sets a ceiling on the share of FHA-insured units, and HUD can suspend new case numbers where a building exceeds it. The exact percentage has changed over time. Ask your loan officer which version applies to your building today.

Here is the practitioner view. Lendmire is a mortgage broker that arranges loans through wholesale lenders, and its FHA cash-out refinance program page covers the basics. The building review is a gate that can stop a file even when the borrower is strong. Borrowers with good credit and plenty of equity can get stuck because the HOA has no current budget or the master insurance policy has a gap. Finding that out before you pay for an appraisal saves real money.

When FHA Cash-Out Is the Better Fit

FHA is the better fit when your credit is thinner, your building clears the one-unit review, and you can live with the premiums. Three situations favor it.

Your credit or debt load is the weak spot. Across the wholesale programs Lendmire places FHA loans with, the credit floor starts at a 580 decision score. The base debt ratios are 31/43 for housing and total debt. Documented compensating factors, like reserves or a strong payment history, can stretch that to 40/50 for the strongest files. The automated finding governs most files, so a conventional loan may or may not ask for more on these points.

You have lived there long enough. FHA cash-out reaches 80% of value on a home you have owned and occupied for the 12 months before the case number is assigned. Lenders look for proof, such as utility bills or employment records showing the unit is your address. If you moved in recently, you may have to wait.

The building is willing to cooperate. One-unit approval needs paperwork from the HOA: income and expense statements, a balance sheet, recorded site plans, insurance certificates and a flood map. HUD lists the minimum documents in its single-unit approval checklist. An organized association can hand all of it over. A disorganized one may not.

Picture a homeowner in a 24-unit building. Her building is off the HUD list, her credit is fair, and she has built solid equity. The building has no pending lawsuits and holds adequate insurance. FHA’s one-unit route may fit her better than a conventional loan that could ask more of her credit.

Now the cost side. FHA charges an upfront premium of 1.75% of the base loan, usually financed into the balance. It also charges an annual premium, between 0.15% and 0.75% of the balance depending on term, amount and LTV. At or below 90% LTV, HUD’s rule ends the annual premium after eleven years. A cash-out capped at 80% falls in that tier. Above 90%, it lasts for the term. Either way, the premiums add to your closing costs and monthly budget.

Two more FHA rules narrow the field. Cash-out is for your principal residence only. And a non-occupant co-borrower’s income cannot help you qualify.

When Conventional Cash-Out Is the Better Fit

Conventional is the better fit when your credit is strong, your building is small, or the home is not your primary residence. It also wins when you want to avoid FHA’s two-part premium.

Your building is too small for FHA. Conventional guidelines can treat small projects differently. Fannie Mae’s waiver of project review covers some detached condos and units in two- to four-unit projects, though a true cash-out generally needs a project that passes the lender’s review. Buildings flagged unavailable in the lender’s project tool are blocked. Waiver rules change, so ask your lender to confirm what applies to your building and your transaction.

You have strong credit and real equity. Conventional loans at lower leverage generally carry no ongoing mortgage insurance. For a borrower with a high score and a healthy cushion, skipping FHA’s upfront premium and the eleven years of annual premiums that an 80% cash-out carries can add up. FHA does not raise its cash-out leverage for higher scores, since the 80% cap applies regardless. Conventional gives strong borrowers more room to use their profile.

The unit is not your primary home. FHA cash-out does not apply to second homes or rentals. Occupancy decides leverage on conventional loans. If this condo is a second home, conventional is the only one of these two paths that applies. Ask for the terms by occupancy type.

You have not lived there for a full year. Conventional ownership requirements are set by the lender and are often shorter than FHA’s 12 months. If you bought recently, that difference can decide it.

Conventional carries its own building risks. Critical repairs, deferred maintenance, pending significant litigation, and heavy short-term rental use can all sink a project review. There is no public list of conventional condo decisions that you can browse. Your lender has to check.

What to Ask Your HOA Before You Apply

Start here, before you order an appraisal. The building’s answers often settle the question.

• Is the project on HUD’s approved list, and has any lender ever submitted it for one-unit approval?
• What share of units carry FHA loans today?
• Do you have current-year and prior-year income and expense statements and a current balance sheet?
• Is there pending or threatened litigation involving the association?
• Are there critical repairs or special assessments planned?
• Does the master insurance policy cover hazard, liability, fidelity and flood where required?
• Do short-term rentals or commercial space take up a large share of the building?

A loan officer can check the building’s status in each system and tell you which path is open. That one call can save you from paying for the wrong loan.

Cash-Out Tradeoffs That Apply to Both

Both loans replace your current mortgage with a bigger one. That means a larger balance, usually a longer payoff and often a higher payment. You will also pay closing costs. The CFPB describes cash-out refinancing in exactly those terms, and it separates it from a home equity loan or HELOC, which is generally a separate loan on top of your first mortgage.

If you have a low-cost first mortgage you like, a separate second loan may fit better than replacing it. A cash-out only makes sense when the new loan as a whole beats what you hold now.

The Verdict

Neither loan wins in general. The building and your profile pick the winner.

Choose the FHA path if the building has at least five units, clears the one-unit review, and your credit or debt ratios need FHA’s flexibility. You will accept the premiums and the 80% cap, and you have owned and lived in the home for 12 months.

Choose the conventional path if your building is small, your credit is strong, you want to avoid FHA premiums, or the unit is not your primary home.

If both paths are open, compare the full picture on your Loan Estimate: the premiums, the closing costs, the loan size and the payoff timeline. If neither is open, the building is the problem, and you may need to wait for the HOA to fix it.

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.

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 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.

References

1. HUD – FHA Condominiums

2. Federal Register – Project Approval for Single-Family Condominiums

3. HUD

4. HUD – Single-Unit Approval Required Documentation

5. HUD FHA Answers – How long is MIP collected

6. Fannie Mae Selling Guide – Waiver of Project Review

7. CFPB – Similar loans to a HELOC