The Quick Read: On a one-unit primary home, the two caps are the same at 80% of the home’s value. FHA used to allow more, but that edge is gone. The real differences now sit in mortgage insurance, credit flexibility, waiting periods, and what happens when the home has more than one unit. FHA tends to fit borrowers with bruised credit or tighter ratios, while conventional tends to fit borrowers with stronger credit who want to avoid a long-running insurance premium.
An 80% cap means roughly 20% of the home’s value stays as equity after closing, whichever program you pick. Where the programs split is everything around that number: who qualifies, what the insurance costs over time, and how long you must wait before refinancing. This article refers to the programs the way a broker sees them. Lendmire arranges FHA, VA, conventional, and jumbo loans through wholesale lenders, and the notes on FHA mechanics below come from that day-to-day file work. Every figure is subject to lender guidelines and full file review, and none of it is a commitment to lend.
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.
Key Terms Defined
Loan-to-value (LTV): The new loan amount divided by the home’s appraised value. FHA calls the appraised figure the “Adjusted Value.”.
Combined loan-to-value (CLTV): The first mortgage plus any second liens that stay in place, divided by value. The cap applies to this combined figure, not just the first loan.
Cash-out refinance: A new, larger mortgage that pays off the old one and hands you the difference in cash.
Conventional: A loan that is not insured by a government agency. In this comparison it means loans that follow Fannie Mae’s guidelines.
Mortgage insurance: Coverage that protects the lender if the borrower defaults. FHA requires it on every loan. Conventional loans usually carry it only when leverage is high.
Side-by-Side
| Factor | FHA Cash-Out | Conventional Cash-Out |
|---|---|---|
| Max leverage, 1 unit | 80% LTV/CLTV | 80% LTV/CLTV |
| Max leverage, 2-4 units | 80% stated; added rules may apply | 75% |
| Credit floor | 580 decision score at wholesale programs | Set by lender; often higher |
| Mortgage insurance | Upfront plus annual premium | Typically none at or below 80% |
| Occupancy | Principal residence only | Primary, second, or investment |
| Ownership wait | 12 months owned and occupied | 6 months on title |
| Payment history | Mortgage paid on time for prior 12 months | Existing first mortgage at least 12 months old |
| Documentation | Full file; payment history verified | Full file; reserves may apply at higher DTI |
How the 80% Cap Got Here
FHA did not always sit at 80%. HUD Mortgagee Letter 2019-11 lowered the maximum LTV and combined LTV on FHA cash-out refinances from 85% to 80% of the Adjusted Value. HUD said the change was meant to reduce risk to the FHA Insurance Fund. FHA had last cut the cap in 2009, from 95% to 85%, under Mortgagee Letter 2009-08.
Why does this matter? Plenty of web pages still show the old figure. If you read that FHA lets you borrow more equity than conventional, you are reading stale information. For a one-unit primary home, the Fannie Mae Eligibility Matrix sets the conventional cash-out cap at 80% too. Same ceiling. Different roads to it.
One more wrinkle on the FHA side: the 80% policy does not apply to Section 247 loans, which cover Hawaiian Homelands. That affects very few borrowers.
How the Cap Is Actually Applied
The test is simple on paper. Divide the new loan by the appraised value. The result must land at or under the cap.
Three points trip people up.
- The appraisal sets the ceiling. A lower appraisal directly shrinks the maximum loan. A cap of 80% on a lower value means less cash.
- Other liens count. The cap is a combined test, so a second mortgage or HELOC that stays in place counts toward it. You cannot slip past the cap by keeping a second lien.
- The cap is a ceiling, not a promise. Credit, income, debt ratios, payment history, and the appraisal still decide whether you are approved and for how much.
Run it as a thought exercise with percentages only. Say a home appraises at 100 units of value and the existing mortgage balance equals 50% of that. At an 80% cap, the new loan can reach at most 80 units, so the gross cash room is the gap between 80% and 50%, or 30% of value, before closing costs and any financed premium come out of it. Costs and premiums shrink that gap. That is why the headline cap overstates what lands in your account.
Individual lenders may also apply stricter overlays than the agency maximum. The cap you see published is not always the cap on your file.
Where the Two Programs Really Differ
Mortgage insurance
This is the biggest gap. Across the FHA programs we place files with, an upfront premium of 1.75% of the base loan is financed into the balance. An annual premium, between 0.15% and 0.75% of the balance depending on term, loan amount, and LTV, is added on top. 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. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
A cash-out FHA loan capped at 80% sits below that 90% line. So the annual premium on a cash-out typically ends after eleven years rather than lasting for life. That detail surprises many borrowers who assume FHA insurance never goes away. It still adds cost, and the upfront premium raises the balance you carry from day one.
Conventional loans at or below 80% LTV generally avoid private mortgage insurance. That is the main structural advantage of conventional at the cap. The tradeoff: you usually need stronger credit and cleaner ratios to get there.
Credit and ratios
The wholesale FHA programs we work with start at a 580 decision score. Ratios start at 31/43 (housing over total debt) with no compensating factors. Documented compensating factors can stretch that to 40/50 at the top tier, and the automated finding governs most files. Conventional lenders often want higher scores and tighter debt ratios, though that varies by lender and file.
If your credit has taken a hit, FHA’s flexibility can be the difference between a workable file and no file. HUD sets its own waiting periods after credit events, such as two years from a Chapter 7 discharge and three years from a foreclosure. Those are HUD’s rules, not a promise from any broker.
Ownership and payment history
FHA looks backward 12 months. The borrower must have owned and occupied the home as a principal residence for the 12 months before case number assignment. HUD Mortgagee Letter 2020-30 also requires documentation that all mortgages were paid within the month due for the previous 12 months, or since the loan began if shorter.
Conventional is split differently. Under the Fannie Mae Selling Guide, the existing first mortgage being paid off must be at least 12 months old, and at least one borrower must have been on title for six months. Named exceptions exist, such as delayed financing for cash purchasers. Time in a revocable trust can count toward the six months when the borrower is the primary beneficiary.
The two waiting periods are not the same. Do not assume one program’s clock matches the other.
Unit count
Fannie Mae drops the cap to 75% for a 2-4 unit primary residence. HUD’s 80% is stated without a unit-count distinction, though additional requirements may apply to larger multi-unit homes. If you live in a duplex, triplex, or fourplex, the comparison tilts. Lendmire’s piece FHA vs Conventional Cash-Out When You Live in a 2-4 Unit Primary Home walks through that case.
When FHA Is the Better Fit
FHA tends to win in a few clear situations.
- Your credit score is modest. A decision score of 580 or higher reaches the wholesale FHA programs. Many conventional files want more.
- Your debt ratios are stretched. FHA’s compensating-factor structure can reach 40/50 where conventional may stop earlier.
- You have a recent credit event. HUD’s waiting periods may be shorter or more forgiving than conventional’s for the same event.
- You are staying in the home a long time with 12 months of clean history. The occupancy and payment-history tests reward a stable record.
- You own the home free and clear. FHA allows a free-and-clear home to be refinanced as cash-out, and so does Fannie Mae, but FHA’s wider credit tolerance can matter more here.
The cost of choosing FHA: the upfront premium is financed into the balance, and the annual premium runs for eleven years at this leverage. If you plan to hold the loan a short time, that insurance cost weighs more heavily. If your credit improves, a later move to conventional can shed it.
Borrowers who want to see how the cash-out program is placed can read about Lendmire’s FHA cash-out refinance program.
One special case: after forbearance, FHA cash-out requires completing the plan and then making at least 12 consecutive monthly payments. For purchases and no-cash-out refinances the wait is only three.
When Conventional Is the Better Fit
Conventional tends to win when your file is strong.
- Your credit is solid and ratios are comfortable. With a clean file, conventional at 80% usually skips mortgage insurance entirely. That can mean a meaningfully lower carrying cost over time.
- You want a shorter wait. Six months on title can beat FHA’s 12 months of ownership and occupancy, depending on your timeline.
- You may not always live there. Conventional cash-out also exists for second homes, though at lower caps. FHA is principal-residence only. That is outside this article’s scope, but the flexibility is real.
- You want to avoid a financed upfront premium. Conventional has no equivalent.
The cost of choosing conventional: tighter credit and ratio standards, and for a 2-4 unit home, the cap falls to 75%. Manufactured homes are lower still on Fannie Mae’s matrix, at 65%. A conventional lender may also require six months of reserves if debt-to-income runs above 45% on an automated file.
Lendmire’s piece Conventional vs FHA Cash-Out Requirements on a 2–4 Unit Primary Home covers the multi-unit side in more depth.
A Quick Decision Guide
| If your situation is… | Lean toward |
|---|---|
| Strong credit, comfortable ratios | Conventional |
| Lower score or stretched ratios | FHA |
| Recent credit event | FHA, if HUD’s waiting period is met |
| Wanting to avoid mortgage insurance | Conventional |
| Living in a 2-4 unit home | Compare both closely |
| Planning to refinance again soon | Weigh the financed upfront premium |
Treat this as a starting point. A borrower with a 700 score and high debt may still prefer FHA, and a borrower with a 600 score and lots of cash may find conventional lenders unwilling. The file decides.
Common Mistakes
Assuming 80% means 80% in cash. The cap is the maximum loan against value, not cash received. The existing balance, closing costs, and any financed premium come out first.
Believing a HELOC gets you past the cap. It does not. Subordinate liens count in the combined test.
Skipping the waiting-period check. A borrower with plenty of equity can still be turned away if the seasoning, occupancy, or payment-history tests are not met.
Using equity to convert other debts without thinking it through. The CFPB notes that turning non-mortgage debt into mortgage debt can put the home at risk of foreclosure if payments become unsustainable. According to the CFPB’s research on cash-out refinances, this is a real consideration. A cash-out also resets your loan terms and may extend the payoff time.
Assuming a cash-out is automatically better than a HELOC. Depending on the terms, a cash-out refinance may be more or less expensive than a HELOC, as the CFPB explains. Closing costs often apply.
The Verdict
Neither program wins outright. On the cap itself, they tie for a one-unit primary home. FHA fits borrowers who need credit flexibility or have recent credit events, and who accept a financed upfront premium and an annual premium that runs eleven years at this leverage. Conventional fits borrowers with stronger files who want to skip mortgage insurance and who can wait the shorter seasoning period. The flip point is usually credit strength: the stronger your file, the more conventional tends to pencil, and the weaker it is, the more FHA does.
Multi-unit owners, borrowers with a recent forbearance, and anyone near the edge of the ratio limits should compare both before deciding. 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. Reach the team at 828-256-2183.
Frequently Asked Questions
Can FHA still lend more than conventional on a cash-out?
No. FHA’s cash-out cap was lowered from 85% to 80% by HUD, which now matches Fannie Mae’s cap for a one-unit primary home. Older web pages that show a higher FHA figure are out of date. The gap now shows up in credit flexibility and insurance, not in how much equity you can reach.
Does a second mortgage or HELOC change the cap?
Yes, it counts against you. The cap is a combined test, so any subordinate lien that stays in place counts toward the 80%. That reduces the room for new cash. A lender will total all the liens against the appraised value before sizing the loan.
How long do I have to own the home before a cash-out?
It depends on the program. FHA requires 12 months of ownership and occupancy as a principal residence before case number assignment, plus documented on-time payments over that period. Fannie Mae requires six months on title and an existing first mortgage at least 12 months old. Exceptions such as delayed financing exist on the conventional side.
Does FHA mortgage insurance last forever on a cash-out?
Not at this leverage. On a thirty-year loan above 90% LTV, the annual premium lasts for the term. Because the cash-out cap is 80%, the shorter schedule typically applies. The upfront premium, financed into the balance, is separate.
Why might my approved amount be lower than 80% of value?
Several things can pull it down. A lower appraisal reduces the ceiling directly. Credit, income, debt ratios, and payment history all still matter, and some lenders apply overlays stricter than the agency maximum. County loan limits also apply to FHA. The 80% figure is a ceiling, not a guarantee.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Mortgagee Letter 2019-11
2. HUD Mortgagee Letter 2009-08
3. Fannie Mae Eligibility Matrix
4. HUD Mortgagee Letter 2020-30
5. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
6. CFPB’s research on cash-out refinances
7. CFPB: What Other Types of Loans Are Similar to a HELOC
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 Streamline vs Conventional Refinance on a 2-4 Unit Primary Home · How Much Cash a Conventional Loan Takes vs. an FHA Loan on Strong Credit · Conventional Loan vs VA Loan for an FHA Borrower With Equity
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
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.