The Quick Read: It depends on how much equity you will have left, your credit, and how long you plan to keep the home. Both loans now stop at 80% of your home’s value, so the real gap is mortgage insurance. Conventional drops it at that leverage and lets you cancel it later. FHA keeps it for a set stretch, but it can open doors when credit or payment history is thin.
How Do the Two Loans Compare Side by Side?
Here is the straight comparison for a one-unit home you live in. The Lendmire FHA cash-out refinance program follows the FHA column. Every figure is subject to lender guidelines and full file review.
| Factor | FHA cash-out | Conventional cash-out |
|---|---|---|
| Maximum loan vs. value | 80% | 80% on a one-unit home |
| Upfront insurance | 1.75% of base loan | None of this kind |
| Ongoing insurance | Annual premium, set length | Generally none at 80% or below |
| When insurance ends | 11 years at 90% or less | Cancellable by law |
| Credit entry point | 580 through our programs | Tied closely to score tiers |
| Occupancy | Owner-occupied only | Also second homes |
| Ownership wait | 12 months owned and lived in | Own seasoning rules |
Notice the first row. Years ago, FHA let you borrow more of your equity than conventional did. That edge is gone. Plenty of borrowers still believe it exists, and it shapes bad decisions.
Which Hurdles Can Knock You Out First?
Before you compare cost, check whether you can use either loan at all. Each has its own gatekeepers.
FHA cash-out has a firm ownership rule. You must have owned and lived in the home for 12 months before the case number is assigned. (A case number is the file ID FHA assigns when your loan is ordered.) The home must be your principal residence. Recent late mortgage payments can also stop the file. Lenders look hard at that history, so confirm the current standard with your loan officer.
Credit is the next filter. Across the wholesale programs Lendmire places FHA files with, the starting point is a decision score of 580. Debt ratios matter too. The base pair is 31/43, meaning housing costs near 31% of income and total debts near 43%. Documented compensating factors, such as savings or steady employment, can stretch that to 40/50 at the top tier. The automated underwriting finding governs most files.
Conventional has its own tests. It looks at how old the loan you are paying off is. It looks at how long you have been on title. Pricing leans heavily on your credit score and your loan-to-value, and a thin file can make the cost climb or end the conversation. Reserves, meaning savings left after closing, can also be required.
One more path to rule out. A standard FHA cash-out is for the home you live in. If you are asking about a second home, occupancy sets the leverage, and that is a different conversation.
What Does the 80% Cap Actually Leave You?
Start with a plain definition. Loan-to-value, or LTV, is your new loan divided by the home’s appraised value. At 80% LTV, 20% of the value stays as equity in the home. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
HUD cut the FHA cash-out limit from 85% to 80% some years back. On the conventional side, Fannie Mae’s eligibility matrix also shows 80% for a one-unit primary residence. It drops to 75% on two-to-four-unit homes.
Here is the catch most people miss. The 80% cap is on the whole new loan. It is not 80% of your equity. The new loan must first pay off your current mortgage. Closing costs come out of the proceeds. On FHA, the financed 1.75% upfront premium also gets added to the loan balance.
So your cash is the cap, minus your payoff, minus those costs. A lower appraisal shrinks it further. Picture a home with a modest balance and a strong appraisal: plenty of room. Picture the same home with a soft appraisal: the cash can all but vanish.
That is why the 80% ceiling rarely decides the choice. Both loans reach it. What decides it is what you pay to hold the loan afterward.
Where the Money Really Differs: Mortgage Insurance
FHA mortgage insurance has two parts. The upfront premium is 1.75% of the base loan, and it is usually financed. The annual premium is billed monthly. Depending on term, loan amount and LTV, it runs between 0.15% and 0.75% of the balance per year.
How long the annual premium lasts depends on original LTV. On a thirty-year loan above 90% LTV, it lasts the full term. At or below 90%, it ends after eleven years. HUD’s premium duration table lays out that structure. Because a cash-out is capped at 80%, the new loan lands in the lower bracket. Eleven years is the usual expectation. Your lender confirms it on your file. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Now the conventional side. Private mortgage insurance, or PMI, is generally tied to loans above 80% LTV. A conventional cash-out sits at or below that line, so it typically carries none. Even where PMI applies, the CFPB explains that you can ask the servicer to cancel it when the balance is scheduled to reach 80% of the home’s original value. Servicers must end it automatically at 78% if you are current. The request must be in writing, and you may need a clean payment record. These rights cover single-family principal residences under a federal law that has been in place for decades.
Fannie Mae’s own consumer page makes the same contrast. PMI is generally removable. FHA insurance is “more complicated and may involve refinancing.”
Conventional is not free of extra cost, though. Lenders may add pricing adjustments tied to credit score and LTV. A lower score pushes that cost up. Lendmire’s piece Cash-Out Refinance With an Existing FHA Loan: Stay FHA or Switch to Conventional? walks through that trade.
When Does It Make Sense to Stay With an FHA Cash-Out?
Staying makes sense when conventional is out of reach or costs more than it saves. That happens more often than the internet suggests.
Your credit sits near the entry point. Conventional pricing gets steep as scores fall. Pricing and available terms vary by lender, borrower profile, property type, and full underwriting review.
Your debt ratios run high. FHA’s documented compensating factors can reach 40/50. Conventional underwriting can be tighter once total debt climbs.
You will sell or move within a few years. The long tail of annual insurance matters less if you do not hold the loan that long. The upfront premium still applies, so the math needs checking.
Your equity is thinner than you think. If a conservative appraisal leaves you short of a conventional file, FHA may be the only loan that works.
Honestly, this is a genuine toss-up for many middle-credit borrowers. Conventional wins on insurance. FHA wins on forgiveness. Neither is the default answer.
When Does Conventional Win?
Conventional wins when you have strong credit and a comfortable equity cushion. No mortgage insurance at 80% LTV is a real, ongoing saving. You also skip the upfront premium. And you avoid the awkward question of how to get rid of FHA insurance later, which usually means refinancing again.
It also wins on holding period. Plan to stay in the home for a decade or more? Then an insurance line that lasts eleven years adds up. Skipping it is hard to beat.
Second homes and larger multi-unit primaries follow different leverage tiers on the conventional side. Occupancy decides the leverage, and the loan officer will confirm which tier fits.
Which Loan Fits Which Borrower?
| Borrower profile | Likely better fit | Why |
|---|---|---|
| Strong credit, 20%+ equity left, long stay | Conventional | No insurance at 80% LTV |
| Score near the 580 entry point | FHA | Conventional cost may climb |
| High debt ratios, solid savings | FHA | Ratios can reach 40/50 |
| Selling within a few years | Often FHA | Insurance tail rarely comes into play |
| Recent late mortgage payment | Wait, then review | History can block either path |
| Owned the home under 12 months | Wait | FHA needs 12 months of ownership |
These are tendencies, not verdicts. A real file has more moving parts. Your credit report, your appraisal and your payoff all shift the answer.
How Do You Run a Break-Even Check?
You do not need dollar figures to see the shape of this decision. You need a method. Treat it as a method, not a forecast.
1. Total the extra upfront cost of each path. For FHA, include the 1.75% upfront premium. For conventional, include any pricing adjustments for your credit and LTV.
2. Find the monthly insurance gap. FHA bills its annual premium monthly. A conventional cash-out at 80% typically has none.
3. Divide the upfront difference by the monthly gap. The answer is the number of months until the cheaper-on-insurance loan pays for itself.
4. Compare that to your holding period. Break-even in four years and you plan to stay for ten? The cheaper-insurance path wins. Break-even in eight years and you plan to sell in five? It may not.
5. Check the interest terms and closing costs on each Loan Estimate. Insurance is only one line. The full page decides.
If one loan wins on every line, you are done. If it is mixed, the holding period breaks the tie.
Already Holding an FHA Loan?
If you already have an FHA loan, you have a third question. Does it make sense to leave it?
A cash-out replaces the loan you have, along with its interest terms and its insurance clock. FHA’s annual premium follows original LTV, not later equity growth. Building 20% equity does not switch it off. That is a common surprise. If you want out of FHA insurance sooner, a refinance into conventional is usually how it happens. Ask how the premium you already paid is treated, and do not assume you will get anything back.
Sequencing matters too. Say you need cash now but your credit is a few months from a better tier. Taking FHA cash now and refinancing to conventional later means two sets of closing costs. Waiting a bit and doing one conventional refinance may cost less. Or the cash need may not wait, in which case FHA now can be the right call. Run both versions.
A few other paths are worth knowing about. An FHA Streamline refinances an existing FHA loan with no appraisal and a limited credit review. It requires a net tangible benefit, and the premium continues. It does not pay you cash. A second lien, such as a home equity loan, may also leave your first loan untouched. That helps if your current loan’s terms are worth keeping. Neither replaces a cash-out. Both belong in the comparison.
Texas has its own state rules for home-equity cash-out. If you live there, check your state’s requirements before you plan.
Four Myths That Skew the Choice
“FHA lets me borrow more equity.” Not on a one-unit primary. Both cap at 80%.
“FHA insurance falls off at 20% equity.” It does not. Duration follows the original LTV.
“I can cash out soon after buying.” FHA needs 12 months of ownership and occupancy. Conventional has its own waiting rules.
“80% LTV means I get 80% of my equity.” No. It is the cap on the whole loan, and costs come out of the proceeds. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Key Terms Defined
Cash-out refinance: A new, larger mortgage that pays off your current one and gives you the difference in cash.
LTV (loan-to-value): The loan balance as a percentage of the home’s appraised value.
Upfront mortgage insurance premium: A one-time FHA charge of 1.75% of the base loan, usually financed into the balance.
Annual mortgage insurance premium: A recurring FHA charge collected monthly, set as a percentage of the balance.
PMI (private mortgage insurance): Conventional-loan insurance, generally tied to loans above 80% LTV and cancellable under federal rules.
Seasoning: The waiting period that proves how long you have owned, lived in, or held a loan on the home.
Net tangible benefit: A real, measurable gain, such as lower costs or a better loan structure, that an FHA Streamline must show.
What Should You Do Next?
Pull together your current mortgage statement, your payment history, and a realistic sense of how long you plan to stay. Then ask for both versions of the loan, side by side.
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. It is a mortgage broker, so it arranges these loans through wholesale lenders. Nothing here is a commitment to lend.
Frequently Asked Questions
Can I switch from FHA to conventional and take cash out at the same time?
Yes, if you qualify. A conventional cash-out can pay off your FHA loan and give you cash. The new loan is capped at 80% of the home’s value on a one-unit primary home. Credit, loan seasoning, and your appraisal decide whether the file works.
Will my FHA mortgage insurance go away if I reach 20% equity?
No. FHA’s annual premium follows original LTV, not later equity. On a thirty-year loan at or below 90% LTV, it ends after eleven years. Above 90%, it lasts the term. Refinancing out of FHA is the usual way to end it sooner. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Do I need an existing FHA loan to do an FHA cash-out?
No. Any eligible primary residence can qualify. You must have owned and lived in the home for 12 months, and the loan must meet FHA credit and ratio guidelines. Your current loan can be conventional, VA, or another type.
Can I get cash out right after buying my home?
Not on FHA. It requires 12 months of ownership and occupancy before the case number is assigned. Conventional has its own ownership and loan-age tests. Both are worth checking early.
Does a lower credit score always mean FHA is the better choice?
Often, but not on every file. Conventional pricing tightens as scores fall, which can make FHA cheaper overall. Still, a borrower with ample equity may find conventional cheaper even at middling credit because it carries no ongoing insurance. A side-by-side Loan Estimate shows which one wins.
To see both versions for the home you live in, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. 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. Fannie Mae Eligibility Matrix
3. HUD Appendix 1.0 mortgage insurance premium table
4. CFPB: When can I remove private mortgage insurance (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: How Much Equity an FHA Borrower Needs for a Conventional Cash-Out · Can You Refinance Out of FHA With a Conventional Cash-Out Refinance? · How to Plan an FHA to Conventional Move When You Also Need Cash
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
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.