The Quick Read: Yes, when the borrower meets conventional cash-out standards. The new loan pays off the FHA mortgage, which ends FHA mortgage insurance because the FHA loan no longer exists. The catch is that it is a full new loan: a new appraisal, full underwriting, an equity cushion, and possibly private mortgage insurance of its own, all subject to lender guidelines and full file review.
What Does This Refinance Actually Do?
A conventional cash-out refinance replaces your FHA mortgage with a new, larger first mortgage that is not government-insured. The new loan pays off the FHA balance. You receive the difference as cash, after costs.
Three things change at once:
1. The FHA loan is paid off and closed out.
2. FHA mortgage insurance stops, because it belongs to the FHA loan.
3. A new conventional loan starts, with new terms, a new appraised value and its own insurance rules.
This is not an FHA Streamline. A Streamline refinances an existing FHA loan into another FHA loan, so the mortgage insurance continues. HUD’s Streamline page says the loan must already be FHA-insured and current, and the refinance must produce a net tangible benefit. A Streamline also cannot hand you cash.
No HUD page treats “FHA to conventional cash-out” as its own topic. Nothing in FHA policy blocks a payoff by a non-FHA loan, though. The answer comes from how FHA insurance ends and what conventional cash-out rules require.
Why Do Borrowers Leave FHA This Way?
Mostly because of the annual mortgage insurance premium. On the programs Lendmire places FHA loans with, 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 at the start, it lasts for the term. At or below 90%, it ends after eleven years. Final terms follow the full file review. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
HUD Mortgagee Letter 2013-04 sets that duration for FHA case numbers assigned on or after June 3, 2013. Paying the balance down does not shorten it. Duration is fixed by the original LTV and term.
Older loans follow older rules. HUD’s loan balance tool shows that case numbers before June 3, 2013 followed an older rule tied to the loan balance falling to a set share of the original value, with a minimum period for longer terms.
So a borrower who started with a small down payment may carry FHA insurance for the life of the loan. A conventional payoff is one clean way out. The cash is a second reason: a cash-out can fund repairs, consolidate debt or cover a large expense.
Here is the part people skip. Leaving FHA does not guarantee a cheaper loan. That depends on your equity, your credit, and the cost of any insurance on the new loan. Compare the two before you commit.
Eligibility: What a Conventional Cash-Out Requires
Conventional cash-out has its own tests, and the FHA loan has to clear them. Based on the Fannie Mae Selling Guide, here is what usually decides the file:
| Factor | What lenders look at |
|---|---|
| Age of current loan | Existing first mortgage at least 12 months old |
| Time on title | At least one borrower on title six months or more |
| Equity | LTV cap on the new loan (see below) |
| Credit and ratios | Full review of credit, income, assets and DTI |
| Reserves | Extra reserves when DTI runs high |
Those are agency guidelines. Individual lenders may add their own overlays, so two lenders can treat the same file differently.
The 12-month rule is the one that trips people up. An FHA loan that closed within the past year generally cannot be paid off by a conventional cash-out. A limited cash-out (rate-and-term) refinance is a different product and may fit instead, but it does not put cash in your hand.
How Much Equity Do You Need?
Expect to keep at least 20% equity after the cash-out on a one-unit primary residence. The Fannie Mae eligibility matrix caps conventional cash-out at 80% LTV for a one-unit principal residence and 75% for two to four units. Freddie Mac’s Guide shows the same two caps. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
The cap applies to the new loan against a new appraised value. So the math runs like this:
1. The appraiser sets today’s value.
2. The lender applies the cap, 80% on a one-unit home.
3. From that maximum, the FHA payoff and costs come out first.
4. What remains is your cash.
Say your home appraises well above what you paid. Your FHA balance has also dropped. The gap between the cap and the payoff is your room. Say instead that you put 3.5% down and your value has barely moved. There may be little or nothing left to take out.
Many cash-out borrowers land at or under 80% LTV on the new loan, which can mean no private mortgage insurance. A borrower at the cap still has to qualify on credit, income and reserves. And no option turns all your equity into cash. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
FHA has a cash-out of its own. The FHA cash-out reaches 80% LTV on a home you have owned and occupied for 12 months before the case number. HUD’s Handbook 4000.1 transmittal notes the cash-out LTV was lowered to 80%. So the cap is the same, but FHA keeps the FHA mortgage insurance. If you want to stay FHA and pull cash, see the FHA cash-out refinance program. Lendmire’s piece Cash-Out Refinance With an Existing FHA Loan: Stay FHA or Switch to Conventional? walks through that comparison. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
FHA Cash-Out vs. Conventional Cash-Out
| Factor | FHA cash-out | Conventional cash-out |
|---|---|---|
| Max LTV | 80% | 80% (1 unit), 75% (2-4 units) |
| Mortgage insurance | FHA premiums continue | PMI possible above 80% |
| Ownership history | Owned and occupied 12 months | Existing loan 12 months old |
| Credit review | Per FHA and lender guidelines | Conventional standards |
| Insurance removal later | Tied to original LTV and term | PMI can be cancelled |
Where the FHA loan wins is flexibility. The wholesale programs Lendmire works with start at a 580 decision score on FHA purchases, and FHA ratios run from 31/43 up to 40/50 with documented compensating factors. Conventional underwriting is usually less forgiving of lower credit scores and higher debt loads, though it varies by lender. A borrower with strong equity but thinner credit may find FHA cash-out is the only version that works.
What Happens to the Insurance After You Refinance?
FHA insurance ends at payoff. The new conventional loan sets its own insurance terms. Private mortgage insurance, if the new loan needs it, behaves differently from FHA premiums. Under the CFPB’s explanation of PMI removal, you can generally request cancellation at 80% of the original value, and termination is automatic at 78%, for single-family primary residences closed on or after July 29, 1999. After a refinance, “original value” generally resets to the new appraisal.
That is the practical advantage. FHA premiums on a high-LTV loan can last the whole term. PMI has an exit built in.
Still, no source compares the two costs for you. Add up what you pay in insurance now. Then compare it with the new loan’s insurance, if any, plus the new closing costs. The refinance only helps if the difference covers the cost of doing it.
When Does Leaving FHA Make Sense?
Match your situation against these profiles:
- Started above 90% LTV, case number after June 2013. Premiums run for the term. A conventional exit is the main way to end them. This is the strongest case.
- Started at 90% LTV or less. Premiums end on their own after eleven years. If you are near that point, a refinance may gain you little.
- Strong equity, strong credit. You likely meet conventional cash-out standards and may avoid PMI.
- Strong equity, thinner credit. FHA cash-out may fit better, since FHA guidelines allow more room on scores and ratios.
- Thin equity. Neither cash-out may work. A cash-out needs the cushion.
- FHA loan under a year old. Not eligible for conventional cash-out yet.
- Just want a lower insurance cost, no cash. A rate-and-term conventional refinance, or a Streamline if staying FHA, may fit better.
When not to do it: if you plan to sell soon, if the cash would pay down debt you could clear another way, or if the new loan costs more over your holding period than the FHA loan you hold now. Using mortgage debt to pay off other debt can raise your risk. The CFPB’s research on cash-out borrowers found paying off other debts is the most common use, and it cautions that this can raise foreclosure risk.
The Process, Step by Step
1. Check your timeline. Confirm the FHA loan is more than 12 months old by note date and that you have held title long enough.
2. Estimate your equity. Use a realistic value, not a hoped-for one. Apply the 80% cap, then subtract your payoff.
3. Pull your documents. Expect pay records, bank statements, your latest FHA mortgage statement and ID. Underwriting is full documentation.
4. Get a Loan Estimate. Compare it against what you pay now, including insurance.
5. Appraisal. The new value drives the cap. If it lands light, the cash shrinks.
6. Underwriting and conditions. The lender reviews credit, income, assets, DTI and the payoff.
7. Closing. You sign the new note and review the Closing Disclosure.
8. Right to cancel. On a primary-residence refinance, you generally get three business days to cancel in writing before funds are disbursed, per the CFPB’s rescission explainer. A phone call does not count.
9. Payoff. The servicer retires the FHA loan.
On payoff, FHA loans that closed on or after January 21, 2015 charge interest only through the payoff date, per the Federal Register final rule on FHA post-payment interest. Older FHA loans may still collect interest through month-end.
Key Terms Defined
Cash-out refinance: A new, larger mortgage that pays off your current one and gives you the difference in cash.
Rate-and-term refinance: A refinance that changes the loan terms without giving you cash beyond small amounts.
LTV (loan-to-value): The loan balance divided by the home’s appraised value.
MIP: FHA’s mortgage insurance premium, paid upfront and annually.
PMI: Private mortgage insurance on a conventional loan, usually needed above 80% LTV.
Seasoning: How long you have held the loan or the title before a refinance is allowed.
Net tangible benefit: HUD’s test that an FHA Streamline must leave the borrower better off.
Mistakes That Derail These Files
- Assuming 20% equity cancels FHA premiums. For newer FHA loans it does not.
- Treating a Streamline as an exit. It keeps FHA insurance.
- Counting the old purchase price as value. Only the new appraisal counts.
- Ignoring the 12-month mark. A recent FHA closing blocks conventional cash-out.
- Expecting the cash at signing. The cancel period comes first.
- Spending the cash without a plan. Debt you pay off with equity is now secured by your home.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
If equity is the question, Lendmire’s piece What Is The Maximum LTV For A Conventional Cash Out Refinance? covers the cap in more depth.
Frequently Asked Questions
Can I do a conventional cash-out refinance on an FHA loan I closed last year?
Usually not. Conventional cash-out generally requires the existing first mortgage to be at least 12 months old, measured note date to note date. A limited cash-out refinance may be available sooner, but it does not give you cash beyond small amounts.
Does a conventional cash-out refinance get rid of FHA mortgage insurance?
Yes, because the FHA loan is paid off and no longer exists. The new loan may carry PMI if it is above 80% LTV. Conventional cash-out caps at 80% on a one-unit primary residence, so many borrowers avoid PMI, subject to lender guidelines.
Can an FHA Streamline give me cash?
No. A Streamline refinances an existing FHA loan with no appraisal and a limited credit review, and it must show a net tangible benefit. The mortgage insurance continues. For cash while staying FHA, the FHA cash-out is the route.
What if my credit is too low for conventional?
FHA cash-out may fit better. The wholesale programs Lendmire places FHA loans with start at a 580 decision score, and documented compensating factors can stretch ratios to 40/50. Conventional lenders often want stronger credit, though overlays differ by lender.
Will I owe a full month of interest when the FHA loan is paid off?
Not on FHA loans that closed on or after January 21, 2015. The servicer may charge interest only through the payoff date.
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. Program details are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
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
2. HUD Mortgagee Letter 2013-04
3. HUD FHA Loan Balance at Final MIP Date tool
4. Fannie Mae Selling Guide B2-1.3-03
5. Fannie Mae Eligibility Matrix
7. HUD Handbook 4000.1 transmittal
8. CFPB: When can I remove PMI?
9. CFPB’s research on cash-out borrowers
10. CFPB’s rescission explainer
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: How to Document a Manually Underwritten FHA Cash-Out Refinance · FHA Cash-Out Refinance for Homeowners Choosing Between Programs · FHA Cash-Out Refinance for Homeowners Whose Tax Returns Understate Income
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.