The Quick Read: On a one-unit home you live in, FHA and conventional cash-out both cap at 80% of the appraised value, so FHA does not let you borrow more. The choice comes down to your credit, how each loan handles mortgage insurance, and the type of property. FHA tends to fit lower credit scores and heavier debt. Conventional tends to fit stronger credit, where insurance can be cheaper and can end.
Why Isn’t Leverage the Deciding Factor Anymore?
On a one-unit primary residence, both loans stop at 80% loan-to-value (LTV), which is the loan balance divided by the home’s appraised value. FHA used to allow more. Old guidance capped FHA cash-out at 85% of value, and that number still floats around online. HUD cut the maximum to 80% in its Handbook 4000.1 update. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
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.
Conventional loans backed by Fannie Mae use the same 80% for a one-unit primary home. So if a website tells you FHA is the route to more cash, check its age.
Your actual cash is smaller than the equity headline. The new loan must fit under the cap, and closing costs and the financed FHA upfront premium both eat into what you receive. A lower appraisal shrinks the cash further. Appraisals come in below online home-value guesses more often than people expect, and the cap applies to the appraised number, not your hopeful one.
What Is an FHA Cash-Out Refinance, Exactly?
A cash-out refinance replaces your current mortgage with a bigger one and hands you the difference in cash. You can spend the money on anything. A no-cash-out refinance, by contrast, only pays off the old loan and the costs.
The CFPB’s research blog draws the line clearly. A cash-out refinance replaces the original mortgage, while a home equity loan or HELOC leaves your first mortgage in place and adds a second loan on top. That matters if your current first mortgage has terms you want to keep.
Here is a point many people miss: you do not need an existing FHA loan to use FHA cash-out. A conventional borrower can refinance into one. The FHA cash-out refinance program is open to any homeowner who meets the occupancy and equity rules. Lendmire’s FHA cash-out refinance program page covers how Lendmire, a mortgage broker, arranges these through wholesale lenders.
How Is an FHA Cash-Out Loan Underwritten, Step by Step?
Every file follows the same path. Across the wholesale programs Lendmire places FHA files with, the steps look like this.
1. Equity test. The new loan must fit within 80% of the appraised value. Your lender confirms how the financed upfront premium counts against that limit.
2. Ownership and occupancy. FHA cash-out reaches 80% LTV on a home you have owned and lived in for 12 months before the case number is assigned. A case number is the identifier FHA assigns to your loan. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
3. Appraisal. A fresh appraisal sets the value. The value sets the maximum loan.
4. Credit review. The lender looks at your score, payment history, and how you have handled debt. The wholesale programs Lendmire works with start at a 580 decision score for FHA. Some lenders set their own higher floor.
5. Income and debt ratios. The lender compares your housing cost and total debts to your income. The base pair is 31/43 (housing over total) with no compensating factors. Documented compensating factors, such as savings or a strong payment record, can stretch that to 40/50 at the top tier. The automated underwriting finding governs most files.
6. Disclosures and closing. You receive a Loan Estimate and, later, a Closing Disclosure. On a primary-residence refinance you get a three-business-day right to cancel in writing, and the money is released after that window ends.
One FHA quirk deserves a flag. Income from a co-borrower who will not live in the home generally cannot be used on a cash-out. Rental income from an accessory unit on a one-unit home generally cannot count either. Confirm both with a loan officer, because overlays vary. (Purchase loans treat a non-occupant co-borrower differently, so don’t carry that assumption over.)
How Does Mortgage Insurance Compare?
This is where most decisions are made. FHA charges an upfront premium of 1.75% of the base loan, and it is usually financed into the balance. HUD’s premium schedule applies that upfront premium to all mortgages, and a cash-out refinance is not in the narrow exempt group.
FHA also charges an annual premium, paid monthly. Across our programs it 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, it lasts the full term. At or below 90% LTV, it ends after eleven years. Because FHA cash-out stops at 80% LTV, the eleven-year path is the one a cash-out borrower should expect, subject to the lender’s review of your file. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Conventional private mortgage insurance (PMI) works differently. There is no upfront premium. Its price moves with your credit score, so strong credit pays less. And PMI can come off. Federal rules let you ask to cancel it when the balance is scheduled to reach 80% of the original value, and the servicer must end it at 78%. Those rights cover conventional PMI, not FHA premiums.
On a cash-out at 80% LTV, a conventional loan may not need PMI at all. That is the quiet advantage of conventional for anyone who qualifies. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Side by Side: What Actually Differs?
| Factor | FHA Cash-Out | Conventional Cash-Out |
|---|---|---|
| One-unit primary home max LTV | 80% | 80% |
| Two- to four-unit primary home | 80% | 75% |
| Upfront insurance cost | 1.75% of base loan | None |
| Ongoing insurance | Annual premium, set by schedule | PMI if above 80% LTV |
| Insurance priced by credit? | No | Yes |
| Second home or rental | Not eligible | Eligible at lower LTV |
| Credit flexibility | Lower floor | Stronger profile favored |
The two- to four-unit row is where FHA can still hand you more. Fannie Mae’s eligibility matrix caps conventional cash-out on a two- to four-unit primary residence at 75%. It also sets 65% for a one-unit manufactured home. FHA’s 80% cap applies more broadly, though a manufactured home must meet its own permanent-installation conditions, so confirm those with your lender.
If your title raises a second home or rental, the answer is short: occupancy decides leverage, and FHA cash-out is for the home you live in.
When Should You Pick FHA?
FHA wins in a handful of specific situations. Think of them as triggers.
Your credit score is on the lower side. FHA’s floor sits below what conventional lenders typically want. Conventional loans have a stricter credit bar, and the PMI price climbs as scores fall. Because FHA’s insurance schedule does not vary by score, a borrower with weaker credit often does better on FHA.
Your debts are heavy relative to income. The 31/43 base and the 40/50 stretch with documented factors give FHA more room than many conventional files get. This is a tendency, not a promise. A loan officer has to run your actual numbers.
You have a recent credit event. HUD’s waiting periods are two years from a Chapter 7 discharge and three years from a foreclosure. Those are HUD rules, not a promise from any lender. Conventional waiting periods are generally longer, so timing alone can push you toward FHA.
You own a two- to four-unit home and live in one unit. The 80% versus 75% gap can mean more cash.
Your current loan is conventional but stuck. You can refinance a conventional loan into FHA cash-out, provided you meet the ownership and occupancy rules.
When Should You Pick Conventional?
Honest answer: more often than the internet admits, if your file is strong.
Your credit is solid and your equity is ample. Strong scores earn cheaper PMI, and at 80% LTV you may skip PMI entirely. You also skip the 1.75% upfront premium that rides along in your balance. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
You expect to stay a long time. FHA’s annual premium runs for eleven years on a cash-out. Conventional PMI, if you have it, can be cancelled early.
You want to cash out a second home or rental. FHA will not do it.
Your existing loan is at least 12 months old. Fannie Mae’s Selling Guide requires the first mortgage being paid off to be at least 12 months old, measured by note dates. The guide also has narrow exceptions, such as delayed financing and a student-loan cash-out option.
A common mistake is assuming FHA is cheaper because its credit bar is lower. For a borrower with strong credit, the upfront premium plus monthly premium can cost more than conventional PMI. Cheaper approval and cheaper loan are different things.
A Worked Comparison (No Dollars, Just Structure)
Run the numbers on two homeowners, each with a one-unit primary home and an appraisal that supports 80% LTV. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Homeowner A has a score in the lower range, a few lingering debts, and a high debt-to-income ratio. Conventional may not approve the file, or may price PMI steeply. FHA’s insurance schedule ignores credit score. The 1.75% upfront premium is financed, and the annual premium runs for eleven years. FHA is likely the path that works, and a later refinance can remove the premium once credit improves.
Homeowner B has strong credit, modest debts, and a first mortgage older than a year. At 80% LTV, conventional may carry no PMI. FHA would add an upfront premium to the balance and a monthly premium for eleven years. Conventional wins, and it is not close. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Notice that neither case turned on borrowing power. Both hit the same 80% ceiling.
How Do You Compare the Two Fairly?
Don’t compare interest rates alone. Compare total monthly housing cost and the cost of mortgage insurance over the years you expect to keep the loan.
Ask your loan officer to put both options on Loan Estimates, then look at three things:
- The loan balance after the financed premium is added.
- The monthly insurance line on each estimate.
- How long that insurance lasts.
A slightly different rate may not outweigh eleven years of premiums. If you plan to sell or refinance within a few years, the upfront premium matters more than the monthly one. If you plan to stay a decade, the duration matters most.
Can You Get Out of FHA Later?
Yes. The usual exit is a conventional refinance once your credit has improved and your equity has grown. That can end the FHA premium and let PMI rules apply instead. Lendmire’s piece Can You Refinance Out of FHA With a Conventional Cash-Out Refinance? walks through that path.
If you move from one FHA loan into another within three years, part of the upfront premium may be refundable, and the refund shrinks month by month. Check HUD’s schedule for the exact amounts. A refinance only makes sense if the new loan’s costs are lower than what you save.
What Are the Risks Before You Cash Out?
Cash-out turns other debt into debt secured by your home. The CFPB notes that this puts the home at risk of foreclosure if payments become unsustainable. It also draws down wealth you might need later.
Borrowers most often say they use the money to pay off other debts, with home repairs second, according to the CFPB’s findings. Credit scores rose after closing for many borrowers, then gradually slipped, though they stayed above pre-refinance levels. Spending the cash on debt only helps if the old balances stay at zero.
Key Terms Defined
Cash-out refinance: A new, larger mortgage that pays off the old one and gives you the difference in cash.
LTV (loan-to-value): The loan balance divided by the home’s appraised value.
UFMIP: The FHA upfront mortgage insurance premium, 1.75% of the base loan, usually financed.
Annual MIP: The monthly FHA insurance premium. It is a percentage of the balance, charged each year and paid monthly.
PMI: Private mortgage insurance on a conventional loan, priced by credit and LTV, and cancellable.
Seasoning: The time you have owned the home, or held the loan, before you can refinance.
Frequently Asked Questions
Can I use an FHA cash-out refinance if I don’t have an FHA loan now?
Yes. Any homeowner who meets the ownership, occupancy, and equity rules can refinance into one, including someone with a conventional loan. The home must be your principal residence, owned and occupied for 12 months before the case number. Your lender reviews the full file.
Does FHA let me borrow more than conventional?
Not on a one-unit primary home, where both stop at 80% LTV. The gap shows up on two- to four-unit owner-occupied homes, where conventional is capped at 75% and FHA at 80%. Closing costs and the financed premium reduce your cash either way. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Is FHA mortgage insurance removable like PMI?
Not through the federal PMI cancellation rights, which cover conventional loans. On our programs, the annual premium on an FHA cash-out at or below 90% LTV ends after eleven years. A common way to end it sooner is to refinance into a conventional loan later. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Can I do a cash-out refinance on a second home or rental with FHA?
No. FHA cash-out is for your principal residence. Conventional loans allow second homes and one-unit investment properties at lower maximum LTVs.
Is it worth it if I might sell soon?
Often not. The upfront premium and closing costs reduce your net cash, and a short holding period gives you little time to recover them. Compare the costs on Loan Estimates against how long you realistically expect to keep the loan.
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. 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 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 Handbook 4000.1 transmittal
2. CFPB Office of Research blog (cash-out refinances 2013 to 2023)
3. HUD Mortgagee Letter 2023-05
4. CFPB: When can I remove PMI
5. Fannie Mae Eligibility Matrix
6. Fannie Mae Selling Guide B2-1.3-03
7. CFPB: CFPB Cash Out Refinances and Paydown Behavior of Non Mortgage Debt Balances
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: Is an FHA Cash-Out Refinance Easier to Get Than a Conventional One? · Cash-Out Refinance LTV Limits for Conventional, FHA and VA Loans · Should You Choose an FHA Cash-Out Refinance Over a Streamline?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- 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.