The Quick Read: Usually yes, though the reason is lender and agency policy, not an FHA rule that punishes you for leaving. HUD’s published credit floor for FHA is low, while conventional loans are priced by score and often carry stricter lender minimums. Across the wholesale programs Lendmire places FHA files with, the FHA cash-out starts at a 580 decision score. A conventional cash-out generally asks for more from the file, and a lower score costs more even where it is still eligible. Credit is one gate among several, and equity, debt load and loan age matter just as much.
What Does “Better Credit” Actually Mean Here?
“Better” is not one number. It is three different thresholds, and most articles blur them.
1. The FHA bar. HUD’s FHA knowledge base says a borrower with a minimum decision credit score below 500 is not eligible for FHA-insured financing. A score from 500 to 579 limits the borrower to 90% loan-to-value, and 580 or higher is eligible for maximum financing. Pricing and available terms vary by lender, borrower profile, property type, and full underwriting review.
2. The conventional bar. Fannie Mae sets minimum scores through its Eligibility Matrix, and its Selling Guide covers credit score requirements, exceptions and automated underwriting treatment. Lenders can add their own minimums on top. A single universal number would be misleading here, so the safe description is this: the conventional bar is generally higher than FHA’s, and it moves with the type of underwriting and the lender.
3. The pricing tiers. This is the one borrowers miss. Conventional loans carry loan-level price adjustments tied to credit score. A borrower can be eligible and still pay noticeably more at the lower end of the range.
So when someone asks whether they need better credit, the honest follow-up is: better than what? Better than the FHA minimum, better than the conventional minimum, or better than the score that earns good pricing?
Why Conventional Cash-Out Underwriting Weighs Credit Differently
FHA is government-insured. If the borrower defaults, the insurance absorbs part of the loss, and that backing is why the credit tolerance is wider. FHA also charges for that cushion through mortgage insurance: an upfront premium of 1.75% of the base loan, financed into the balance, plus an annual premium that runs from 0.15% to 0.75% of the balance depending on term, amount and LTV.
Conventional loans work differently. At or below 80% loan-to-value, a conventional cash-out typically carries no mortgage insurance at all. The lender has no insurer to lean on, so it manages risk through score, equity and pricing. Lower score, higher price. That is the trade, and it is why credit carries more weight in this particular switch.
Automated underwriting adds another layer. Fannie Mae’s system weighs score together with other factors rather than applying one cliff. Even so, a lender can still set its own minimum score, and a thin or damaged file tends to draw a manual review or a decline anyway.
Credit Isn’t the Only Gate
Borrowers often fixate on the score and get blindsided by something else. Here is what else decides the file.
| Factor | What the lender checks | How it interacts with credit |
|---|---|---|
| Equity | Value from the appraisal | Both programs cap cash-out at 80% |
| Loan age | Time since the FHA note date | New FHA loans may need to wait |
| Title time | How long you’ve been on title | A separate clock from loan age |
| Debt load | Total debt against income | High ratios can add reserve rules |
| Occupancy | Primary residence or not | Lower caps apply to other uses |
| Score | Merged three-bureau report | Drives eligibility and pricing |
The ceiling applies to both
Many borrowers assume FHA lets them pull out more. Not anymore. HUD’s announcement cut the FHA cash-out maximum from 85% to 80% for case numbers assigned on or after September 1, 2019, aligning it with the government-sponsored enterprise standard. The earlier 85% limit dates to HUD Mortgagee Letter 2009-08. Today, on a one-unit home you live in, both programs stop at 80% of appraised value. Lendmire’s FHA cash-out reaches 80% LTV on a home owned and occupied for 12 months before the case number. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Fannie Mae’s Eligibility Matrix lists 80% for a one-unit principal residence and 75% for two to four units. Manufactured homes sit at 65%. A rate-and-term refinance allows far higher LTV, but it does not put meaningful cash in your hands.
The clocks that can block you before credit does
The Fannie Mae Selling Guide’s cash-out topic sets two timing rules. The existing first mortgage must be at least 12 months old, measured note date to note date. And at least one borrower must have been on title for six months before disbursement. For FHA borrowers, that means a recent FHA purchase may simply be too young to refinance into a conventional cash-out. No credit score fixes a calendar.
The same topic requires six months of reserves on a DU-underwritten cash-out when the debt-to-income ratio is above 45%. A borrower with strong credit and heavy debt can still hit that wall.
Three Borrower Profiles
These scenarios are illustrative, described in plain words rather than exact amounts, and every outcome is subject to lender guidelines and full file review.
Stronger credit, healthy equity. The borrower has a high score, low card balances and no recent late payments, and the home appraises well above the loan. Conventional is likely to be the better path. No mortgage insurance at or below 80% LTV, and pricing sits at the favorable end of the score tiers. Dropping FHA insurance can meaningfully reduce the monthly cost of carrying the loan. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Middle-of-the-range credit. This is the genuine toss-up. The borrower is eligible for conventional, but the score-based price adjustment can eat the savings from dropping FHA insurance. Here the comparison depends on the actual Loan Estimates, not on a rule of thumb. A modest improvement in score, say from paying down revolving balances, can shift the answer.
Weaker credit or recent trouble. The conventional route may be closed or expensive. An FHA cash-out, which starts at a 580 decision score through the programs Lendmire works with, tolerates more. HUD’s waiting periods after a credit event, two years from a chapter 7 discharge and three years from a foreclosure, are HUD rules, not promises from any network. Waiting and repairing credit before applying can beat applying now and taking a poor outcome.
What Moves a Score Fastest?
Four things tend to matter most to a lender reviewing your file:
- Revolving utilization. High card balances against limits drag scores down, and paying them down often helps within a billing cycle or two.
- Recent late payments. Mortgage lates weigh heavily, and a late on your current FHA loan gets attention.
- Collections and public records. These can limit options or require explanation.
- Which score is used. Lenders pull a three-bureau merged report and use a specific score from it. Fannie Mae announced that VantageScore 4.0 and FICO 10T are now approved models, but implementation is phased, so a borrower should not assume a particular model will be used.
Practitioners who arrange these loans every week see the same pattern. The surprise is rarely the headline score. It is a single recent late payment, a maxed-out card or a collection nobody remembered, found late in the file. Pull your own reports before you apply.
Is Switching Worth It?
Treat it as a break-even question: what you save against what you pay to switch. Three pieces go on the savings side or the cost side:
- Savings: FHA mortgage insurance you no longer pay, and any change in the loan’s pricing.
- Cost: a second round of closing costs, paid out of the new loan or in cash, plus any score-based price adjustment.
- Time: how long you will keep the new loan, since savings accumulate monthly and costs hit once.
If you expect to sell or refinance again soon, a switch with modest savings may never break even. If you plan to stay, removing long-lasting mortgage insurance can matter. On a thirty-year FHA loan above 90% LTV, the annual premium lasts for the term. At or below 90%, it ends after eleven years. Conventional PMI, by contrast, can be cancelled under CFPB-described rights, though that page covers PMI, and for FHA insurance questions it points borrowers to their servicer.
One more caution. Using cash-out to consolidate credit cards turns unsecured debt into debt secured by your home. That may lower the monthly strain, but it raises the stakes if income drops. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
If Your Credit Isn’t Ready
You have real options, and none of them require giving up.
1. Keep the FHA loan and wait. Pay down balances, avoid new accounts and let a clean payment history build.
2. Do an FHA cash-out instead. The credit tolerance is wider, the cap is the same 80%, and the mortgage insurance continues.
3. Consider an FHA Streamline. This refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit. It is not a cash-out, and the premium continues.
4. Reconsider the amount. Pulling out less cash sometimes keeps ratios inside reach.
Special cases need individual review.
Key Terms Defined
Decision credit score: The score a lender uses to decide eligibility, taken from a merged three-bureau report.
Loan-level price adjustment: A score-based pricing charge on conventional loans that makes a lower score cost more.
Loan-to-value (LTV): The new loan balance divided by the home’s appraised value.
Seasoning: The minimum time you must have held the loan or the title before a cash-out is allowed.
Net tangible benefit: The test that an FHA Streamline must leave the borrower measurably better off.
The Step-by-Step Path
1. Pull your credit reports and fix errors.
2. Confirm your FHA loan age and your time on title.
3. Estimate your value and check that the new loan stays at or under 80%.
4. Compare Loan Estimates for the conventional and FHA cash-out options side by side.
5. Order the appraisal and submit income and asset documents.
6. At closing, the new loan pays off the FHA loan, costs and any debts you chose to consolidate. The balance comes to you as cash.
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. The details of the FHA cash-out refinance program are a good place to start. Every program is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
Do I need a higher score to go from FHA to conventional cash-out?
Generally yes. Conventional minimums are set through Fannie Mae’s Eligibility Matrix and lender overlays, and they tend to sit above FHA’s, with pricing that steps up as the score drops. Strong equity and low debt help, but they do not replace the score.
Can I still do it with a lower score?
Sometimes, but it costs more. Fannie Mae’s rules tie loan-level price adjustments to credit score, so eligibility and affordability are different questions. That added cost can erase the savings from dropping FHA mortgage insurance.
Does strong equity offset weaker credit?
Only partly. Equity helps you stay under the 80% cap, but the cap itself does not move. Low debt ratios and healthy reserves can strengthen a middle-range file, though a very low score or recent late payments can still limit conventional options.
Will refinancing remove FHA mortgage insurance?
A conventional cash-out at or below 80% LTV typically carries no mortgage insurance, so the FHA premium ends when the FHA loan is paid off. The tradeoff is whatever the conventional loan costs in pricing and closing costs.
Is FHA cash-out ever the better choice?
Yes. If your score sits in a range where conventional pricing is steep, or a recent credit event limits conventional options, an FHA cash-out offers wider credit tolerance at the same 80% cap. It makes sense for borrowers who value flexibility over the lowest long-term insurance cost.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For the program’s current guidelines, see FHA loan programs.
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References
2. HUD Mortgagee Letter 2009-08
3. Fannie Mae Eligibility Matrix
4. Fannie Mae Selling Guide B2-1.3-03, cash-out refinance transactions
5. Fannie Mae announcement on approved credit score models
6. CFPB: When can I remove PMI?
This article is part of Lendmire’s FHA Loan series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Can You Refinance a Texas Homestead FHA Cash-Out Into Better Terms? · How to Improve Credit Before an FHA to Conventional Cash-Out Refinance · FHA Cash-Out vs Conventional Cash-Out If Your DTI Fits FHA Better
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.