Both FHA and Conventional Cash-Out refinances let homeowners unlock home equity by replacing their current mortgage with a new, larger loan — and pocketing the difference in cash.
The difference is in who backs the loan and who it’s designed for:
- FHA Cash-Out – backed by the Federal Housing Administration, easier to qualify with lower credit.
- Conventional Cash-Out – private lender product, ideal for borrowers with strong credit and higher equity.
FHA vs Conventional Cash-Out: Side-by-Side Comparison
Feature | FHA Cash-Out Refinance | Conventional Cash-Out Refinance |
| Minimum Credit Score | 580+ (official FHA minimum) — some lenders allow 500–579 with higher down payment or tighter terms | 620+ (agency minimum) — but 660+ is typical for best rates and approval |
| Max Loan-to-Value (LTV) | Up to 80% (reduced from 85% by HUD as of 2023) | Up to 80% |
| Debt-to-Income (DTI) | Generally up to 50%, sometimes higher with strong compensating factors | Typically ≤ 45%, up to 50% in rare cases with DU/LP approval |
| Mortgage Insurance | Required — Upfront MIP (1.75%) + Annual MIP (0.55–0.85%) for the life of the loan (if LTV > 78%) | Not required if ≥20% equity; PMI applies only if <20% equity |
| Eligible Property Types | Primary residence only | Primary, second home, or investment property |
| Average 2025 Rate Range | ~6.50–6.80% (typically 0.25–0.5% higher than conventional) | ~6.25–6.50% (depends on credit, LTV, and occupancy) |
| Best For | Borrowers with moderate credit or limited equity; more flexible underwriting | Borrowers with strong credit and ≥20% equity seeking lowest long-term cost |
Key Insights
- FHA reduced the maximum LTV for cash-out to 80% (HUD Mortgagee Letter 2023-17).
- Conventional loans remain capped at 80% LTV for primary residences, with lower limits for second homes or investment properties.
- Mortgage insurance (MIP) on FHA loans cannot be removed — borrowers must refinance into a conventional loan to eliminate it.
- Rate spread: FHA rates are often 0.25–0.5% higher but easier to qualify for.
-> See detailed Conventional Cash-Out requirements
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Real Example: Comparing Both in 2025
Scenario | FHA Cash-Out | Conventional Cash-Out |
| Home Value | $400,000 | $400,000 |
| Loan Balance | $250,000 | $250,000 |
| Max Loan Amount | $320,000 (80% LTV) | $320,000 (80% LTV) |
| Cash-Out | $70,000 | $70,000 |
| Rate (2025 Avg.) | 6.65% (with MIP) | 6.35% (no MIP) |
| Monthly Payment (est.) | $2,046 | $1,980 |
| Upfront Insurance | 1.75% (UFMIP) | None |
| Annual Insurance | 0.55% (MIP) | 0–0.5% (PMI) |
-> Compare today’s cash-out refinance rates
Result:
- FHA helps more borrowers qualify, especially if credit < 620.
- Conventional loans usually save more long-term if you have strong credit and equity.
Pros and Cons at a Glance
FHA Cash-Out Benefits
- Easier qualification (credit 500+)
- Government-backed for added lender confidence
- Great for debt consolidation or home upgrades
FHA Cash-Out Drawbacks
- Requires Upfront + Annual MIP
- Higher total cost over time
- Only for primary residences
-> Read full FHA Cash-Out guide
Conventional Cash-Out Benefits
- Lower rates for well-qualified borrowers
- No upfront insurance
- Works for second homes or rentals
- PMI can be removed after 20% equity
Conventional Cash-Out Drawbacks
- Stricter credit & documentation
- Requires stable income and strong DTI
- Not ideal for lower credit borrowers
Which Loan Is Better for You?
If You… | Choose… |
| Have credit below 620 | FHA Cash-Out |
| Have strong credit and 20%+ equity | Conventional Cash-Out |
| Want the lowest cost over time | Conventional |
| Need flexible approval or higher DTI | FHA Cash-Out |
Pro Tip: Use Loan Factory’s AI-powered MOSO system to instantly compare 240+ lenders and see both FHA and Conventional options side-by-side.
Why Choose Loan Factory
Loan Factory helps homeowners refinance smarter — combining AI technology, transparent pricing, and access to 240+ lenders.
Why borrowers choose us:
- Best Price Guarantee: If we can’t beat a competitor’s rate, we’ll pay you $1,000 (Terms)
- AI-powered MOSO platform for instant loan comparisons
- 240+ wholesale lenders with real-time rates
- No application or junk fees
- Guided by Thuan Nguyen – America’s #1 Loan Officer
- Get personalized support from a local loan advisor
When you compare FHA vs Conventional Cash-Out, the right choice depends on your credit, equity, and goals:
- Go FHA if you need flexible approval.
- Go Conventional if you want lower long-term costs.
Either way, Loan Factory makes it easy to compare rates and lenders — ensuring you always get the best deal with transparent pricing and no hidden fees.
Check your cash-out refinance options today: www.LoanFactory.com/quote or call (660) 333-3333 to speak with an advisor.
FAQ: Compare FHA vs Conventional Cash-Out
