Refinancing from FHA to Conventional: When It Makes Sense and How to Do It
An FHA loan can be a great starting point for first-time buyers thanks to its lower credit and down payment requirements. But once you’ve built equity in your home and improved your financial standing, refinancing into a conventional loan could open the door to better terms, lower long-term costs, and more flexibility.
So yes, you can refinance an FHA loan into a conventional loan—as long as you qualify under the conventional loan guidelines. That means a credit score of at least 620, a maximum debt-to-income ratio of 45 percent, proof of income and homeowners insurance, and ideally 20 percent equity in your home. While you can refinance at any time, some lenders may require the refinance to bring a tangible benefit like a lower monthly payment or shorter loan term.
There are several compelling reasons why homeowners make the switch. One of the biggest is to get rid of FHA mortgage insurance premiums, or MIP. Most FHA loans require MIP for the life of the loan, regardless of your equity. In contrast, conventional loans only require private mortgage insurance (PMI) until you reach 20 percent equity, at which point you can cancel it. If your credit score has significantly improved or market rates have dropped since you took out your FHA loan, you may also be able to score a lower interest rate through a conventional refinance. And if you’re looking to tap into your home equity for cash, a conventional cash-out refinance allows you to access up to 80 percent of your equity—without mortgage insurance.
Still, refinancing comes with trade-offs. It is not free. You’ll face closing costs, typically two to five percent of the loan amount, and need to go through the full mortgage approval process again. That includes paperwork, income verification, possibly a home appraisal, and a 30 to 45 day closing timeline. Plus, if you refinance with less than 20 percent equity, PMI could still apply—sometimes costing more than the MIP you were trying to avoid.
To get started, you’ll want to clearly define your refinancing goal: are you after a lower rate, lower monthly payments, cash for renovations, or a shorter term? From there, gather quotes from multiple lenders and compare your loan estimates side by side, looking at interest rates, APR, fees, and long-term savings. Once you choose a lender, you’ll submit financial documentation and prepare for the refinance process, including a possible home appraisal.
If a conventional refinance doesn’t make sense right now, there are still options. One is the FHA streamline refinance, a simplified program with minimal credit or income verification and no appraisal needed. It’s available to homeowners who’ve had their FHA loan for at least 210 days and are current on their payments. The refinance must result in a tangible benefit, such as a reduced monthly payment or switching from an adjustable to a fixed rate.
There’s also the VA refinance option for eligible service members or veterans, though moving from an FHA to a VA loan typically requires a cash-out refinance route.
Bottom line: refinancing from an FHA to a conventional loan can be a smart financial move when the timing is right. It can save you thousands in insurance costs, reduce your interest rate, and provide access to your home equity. But like any major financial decision, it’s worth weighing the upfront costs against the long-term benefits before making the switch.