The Quick Read: Moving from a conventional loan to an FHA cash-out swaps one kind of mortgage insurance for another, and the new kind does not drop off when your equity grows. A cash-out refinance reaches 80% of the home’s value at most, so the annual premium normally runs eleven years. After that, your exits are the end of that period, a later refinance into a non-FHA loan, or a sale. Build that plan before you apply, not after you close.
Key Takeaways
- FHA cash-out tops out at 80% LTV (loan-to-value, the loan as a share of the home’s value) on a home you have owned and lived in for 12 months.
- The upfront premium is 1.75% of the base loan, and it is financed into the balance.
- The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. At or below 90% LTV on a thirty-year loan, it ends after eleven years.
- A new cash-out loan starts a new clock. The eleven years run from the new loan, not your old one.
- Switching from conventional means you get no refund of the upfront premium. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Why Would Anyone Go From Conventional to FHA Cash-Out?
Most people don’t, and that is the honest starting point. If your conventional loan is in good shape and your credit is strong, a conventional cash-out often costs less in mortgage insurance. The cash-out limit is the same 80%, and many conventional loans at that leverage carry no private insurance.
So who makes this move? Usually someone who hits a wall on the conventional side. Maybe the credit score is lower than conventional programs allow. Maybe the debt-to-income ratios are too tight. Across the wholesale programs Lendmire places FHA files with, the base ratios are 31/43 (housing cost over income, total debt over income). Documented compensating factors can stretch that to 40/50 at the top tier, and an automated finding decides most files. Credit starts at a 580 decision score on the programs Lendmire places with.
Those are the cases where the FHA cash-out refinance program earns a look. The cash is real. The insurance is the trade-off. The rest of this piece is about pricing that trade-off before you sign.
Key Terms Defined
PMI (private mortgage insurance): Insurance on a conventional loan that protects the lender when you put down less than 20%, and which can be removed under set rules.
MIP (mortgage insurance premium): FHA’s version of mortgage insurance, made of an upfront piece and a monthly annual piece.
UFMIP (upfront mortgage insurance premium): The one-time FHA premium of 1.75% of the base loan, usually financed into the loan.
Base loan amount: The loan before the financed upfront premium is added. Premiums are figured on this number.
Adjusted value: The appraised value figure the lender uses for the LTV test on a cash-out.
Combined LTV: All liens that stay on the home, added together, as a share of value.
How the Exit Clock Works on a New FHA Cash-Out
The premium clock starts on the day the new loan gets its FHA case number and ends on a schedule set by your leverage. Here is how it plays out in order.
Step 1: Leverage sets the tier. On a thirty-year loan, HUD’s current schedule from Mortgagee Letter 2023-05 ties annual premium length to original LTV. At 90% or below, it lasts eleven years. Above 90%, it lasts for the whole term.
Step 2: The cash-out cap lands you in the shorter tier. HUD cut the cash-out ceiling from 85% to 80% of adjusted value, as HUD’s announcement explained, to match the limit the big mortgage investors use. Since 80% sits below the 90% breakpoint, a compliant cash-out normally falls in the eleven-year tier. That is an inference from two rules, not a sentence HUD wrote. Confirm the tier with your loan officer.
Step 3: Equity growth does not cancel it. Your home can rise in value and you can pay the balance down. Neither ends the annual premium early on this kind of loan. Conventional PMI works differently, which is the whole reason this plan matters.
Step 4: The 1.75% upfront premium is financed. The final balance ends up above the base loan. A larger cash-out means a larger loan, so both premiums grow with it.
Shorter terms differ. A fifteen-year term has its own schedule with different LTV breakpoints. Ask for the tier in writing for the exact term you choose.
What You Give Up on the Conventional Side
Look at your current PMI before you apply. If it is gone, or close to going, the swap adds a premium you may not be paying today.
The CFPB explains the conventional rules for most single-family primary residences. You can ask in writing to cancel PMI when your scheduled balance reaches 80% of the original value. You need a good payment history, no junior liens, and proof the value has not fallen. The servicer must end it automatically at 78% of original value, and at the loan’s midpoint. Those rules cover borrower-paid PMI. Lender-paid and higher-risk loans can differ.
Note the words “original value.” A common myth says PMI vanishes the day you hit 80% of today’s value. Some servicers will reappraise, but that is their policy, not your right.
Trading a loan with a built-in off-switch for one without it is the core cost. Price it.
Three Ways Out of FHA Mortgage Insurance
| Exit path | What triggers it | Main cost | What can go wrong |
|---|---|---|---|
| Wait it out | Eleven years pass on the new loan | Years of monthly premium | Costs add up if you stay long |
| Refinance to non-FHA | Enough equity and a qualifying file | New closing costs; upfront premium not refunded | Value drops or credit slips |
| Sell | You move or cash out the equity | Sale costs | Timing may not suit you |
Waiting is the plain option. At the end of the period, the annual premium stops. It asks nothing of you except patience and the budget room.
Refinancing out is the active option. Fannie Mae notes that FHA mortgage insurance is more complicated than PMI and may involve refinancing. The new lender will look at your credit, income, debts and a fresh appraisal. The same things that pushed you toward FHA may still be there, so that is the thing to fix in the meantime.
Selling ends the loan and the premium together. For people who expect to move within a few years, it is often the real exit.
For a deeper look at the refinance route, Lendmire’s piece How to Plan Your Exit From MIP After an FHA Cash-Out walks through the timing.
The Equity Squeeze Nobody Mentions
Cash-out shrinks the cushion you would later use to exit. Pull the maximum and you start at about 80% LTV. For a later refinance without mortgage insurance, you generally want to be at or below that same 80% on the new loan.
Picture a home where you take the full 80%. On day one you have almost no room. Every dollar of principal you pay and every bit of price growth builds the room back. Run the other way and you take a smaller cash-out at, say, 70% LTV. You leave yourself a head start on the exit and a smaller premium on the way in. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
This is a genuine toss-up for many borrowers. Maximum cash helps today. A smaller draw helps the exit. Neither is wrong, but decide on purpose.
Remember, too, that other liens count. A second mortgage that stays on the home uses up room under the 80% combined cap. It never adds any.
Where the Rules Break
A few named edge cases change the answer.
- FHA-to-FHA refinances. When the loan you are paying off is itself FHA and under three years old, a partial credit for the old upfront premium can apply toward the new one. It is a credit, not cash. A conventional payoff earns nothing, so the full 1.75% applies. Confirm the refund schedule with your lender.
- Hawaiian Home Lands loans. Section 247 loans sit outside the cash-out LTV change and do not carry the annual premium, per HUD’s letters.
- Rentals and second homes. Standard FHA cash-out is for the home you live in. Occupancy decides the leverage, and a non-owner-occupied property does not fit this program.
- Manufactured homes. They carry an added installation requirement, so ask about it up front.
- Older loans. Loans with case numbers from before mid-2013 follow an older premium schedule. A new cash-out gets a new case number, so this rarely affects you.
- Larger loans. Bigger base loan amounts have their own premium tiers. County loan limits apply and change every year.
Build the Exit Plan Before You Close
Treat the exit as part of the loan decision. Here is a practical order.
1. Write down your expected stay. Under five years leans toward selling as the exit. Over ten leans toward waiting.
2. Check your PMI status. Know how close you are to the 80% and 78% marks.
3. Confirm eligibility. You must have owned the home and lived in it as your main residence for the 12 months before the case number. Lenders also review your recent mortgage payment history, and late payments can stop the file.
4. Ask for the premium tier in writing. Get the annual premium duration for your term and LTV.
5. Pick the cash amount deliberately. Remember the financed upfront premium and any remaining liens eat into the 80% cap.
6. Set checkpoints. Review the loan at year two, year five and year eight against value, credit and balance.
7. Know the round-trip cost. An exit refinance means a second set of closing costs and no refund of the upfront premium. The Loan Estimate shows the exact figures for your file.
A typical file needs proof of occupancy, your mortgage payment history, a payoff statement and an appraisal. Your lender will give you the exact list.
A Worked Example
These inputs are modeled assumptions, not market data. Say your home appraises at some value and your conventional loan sits near 60% LTV with PMI already gone. You apply for an FHA cash-out at 75% LTV, below the 80% cap. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Your leverage is under 90%, so the annual premium tier is eleven years. You now pay a new premium that you were not paying before. The upfront 1.75% is financed in. You have no PMI-style way to cancel early.
To exit by refinance, you would aim to get the new loan at or under 80% of the then-current value. Pricing and available terms vary by lender, borrower profile, property type, and full underwriting review. Even modest principal paydown or price growth could make that reachable, assuming credit and income hold. Compare that to the cost of the round trip: second closing costs plus the upfront premium that does not come back. The exit pays only if you hold the new loan long enough for the savings on mortgage insurance to outweigh those costs.
Now flip it. Take the full 80% instead. You borrow more, pay more in both premiums, and begin with less equity room. The plan still works, but the exit is further away.
What Can Derail the Exit
- Value falls. Your equity room shrinks. The fallback is to wait out the eleven years or hold until value recovers.
- Credit slips. A weaker score can price you out of a non-FHA refinance. Keep payments on time and balances low through the whole period.
- Income or job changes. A new lender wants to see stable income and manageable debt. Document it as you go.
- Appraisal comes in low. Tell your lender the plan early so you have options.
- The rules shift. Talk of policy changes is speculation. Build the plan on the schedule that applies today and the eleven-year backstop.
Common Mistakes
- Assuming the premium cancels once you reach 80% of the new value.
- Forgetting the financed upfront premium and other liens use up cap room.
- Expecting a refund of the old upfront premium on a conventional payoff.
- Taking the maximum cash without checking what it does to the exit.
- Skipping the written premium-tier confirmation.
Should You Do This at All?
Ask three questions. Is a conventional cash-out available to you at a reasonable cost? If yes, compare it first. Do you expect to keep the home past the eleven-year mark, or to sell before then? And is the extra flexibility on credit or ratios worth a premium that does not cancel?
If you answer yes to the third and your stay is short, FHA cash-out can make sense. If your conventional options are open, the cheaper mortgage insurance picture often wins. All program figures here are subject to lender guidelines and a full file review. None of it is a commitment to lend.
Where to Go From Here
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 or request a quote at Lendmire’s quote page.
Frequently Asked Questions
Does an FHA cash-out refinance carry mortgage insurance?
Yes. It carries an upfront premium of 1.75% of the base loan, usually financed, plus a monthly annual premium. The annual piece depends on term, loan amount and LTV, and runs between 0.15% and 0.75% of the balance.
Does reaching 80% equity cancel FHA mortgage insurance?
No. On this kind of loan, equity growth does not end the annual premium. Conventional PMI has request and automatic cancellation points, but FHA insurance ends on its own schedule or when you refinance or sell.
Do I get my upfront premium back if I leave FHA?
Generally no. A credit exists only when an FHA loan under three years old is refinanced into another FHA loan, and it is applied to the new premium, not paid as cash. Moving from conventional into FHA earns no credit.
Can I switch back to a conventional loan later?
Often yes, if you qualify. The new lender reviews credit, income, debts and a new appraisal. Having your balance at or below 80% of value usually keeps private insurance off the new loan. Qualification is subject to lender guidelines.
Does it matter if I rent the home out later?
Standard FHA cash-out requires that you own and live in the home as your main residence for 12 months before the case number. Occupancy decides the leverage and eligibility, so talk to your loan officer before changing how you use the property.
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.
For the program’s current guidelines, see FHA loan programs.
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References
1. HUD Mortgagee Letter 2023-05
2. HUD Mortgagee Letter 2019-11
3. HUD press release on cash-out limits
4. CFPB: When can I remove PMI from my loan?
5. Fannie Mae: Private mortgage insurance
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: FHA Cash-Out vs Conventional Cash-Out for a High Debt Ratio · How Much FHA Cash-Out Insurance Costs Versus Conventional by Equity · Should You Stay With an FHA Cash-Out or Move to Conventional?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.