Refinancing an FHA loan into a conventional mortgage pays off the FHA loan and ends its mortgage insurance obligation. The new mortgage may have private mortgage insurance of its own. Whether the change is worthwhile depends on the new rate, insurance, costs and repayment timeline together.
Start with your current mortgage statement and original loan information. A comparison based only on today's property value can miss the rules that govern your existing FHA insurance.
Identify the FHA insurance you actually have
For FHA case numbers assigned on or after June 3, 2013, annual MIP duration generally follows the original loan-to-value ratio, excluding financed upfront MIP:
- At or below 90% original LTV: until the loan ends or 11 years, whichever comes first.
- Above 90% original LTV: until the loan ends or 30 years, whichever comes first.
Paying principal down sooner does not itself shorten those durations. Older FHA loans need a separate review. The premium amount also depends on the applicable FHA schedule and loan characteristics. Use the original case information and the servicer's records instead of applying a generic annual percentage from an old article. HUD's MIP duration policy explains the original-LTV distinction.
Ask what replaces the FHA cost
Conventional refinancing can be possible without 20% equity, depending on the transaction and underwriting. PMI is usually required when equity is below that level. Obtain the actual premium and payment structure for the new offer. New-loan PMI requirements differ from the rules for cancelling PMI later on an existing loan.
Approval also depends on verified income, obligations, assets, property eligibility and credit review. Conventional programs do not share one universal minimum credit score. Automated underwriting, manual underwriting and individual lender requirements can differ. A published agency rule is not an approval for a particular borrower.
Compare three choices on the same timeline
| Choice | What to examine |
|---|---|
| Keep the current FHA loan | Remaining term, existing rate, MIP amount and its scheduled end |
| Refinance to conventional | New rate, possible PMI, closing costs, balance and full term |
| Consider an FHA Streamline | Eligibility, net tangible benefit, continued FHA insurance and transaction costs |
An FHA Streamline is a refinance with limited documentation and underwriting under its rules. HUD distinguishes credit-qualifying and non-credit-qualifying paths. It requires an eligible existing FHA loan and a net tangible benefit; it is not an automatic approval or a cost-free transaction. Ask which path applies to your file rather than assuming income review or an appraisal is always waived.
A lower payment can tell two different stories
Imagine a homeowner who has already repaid several years of an FHA mortgage. One conventional offer removes monthly insurance but starts a new long term. Another keeps the payoff date closer to the current schedule. The first may improve monthly cash flow more while the second may reduce debt faster. Compare remaining principal at a likely sale date as well as the monthly payment.
Separate costs paid in cash from costs added to the new balance. Include points, lender credits, appraisal and settlement charges where applicable. If you expect to move soon, a small payment reduction may not recover the upfront expense. If the FHA MIP is approaching its scheduled end, compare against that future payment too.
Prepare for an evidence-based review
Bring the current rate, balance, monthly MIP, remaining term, original case date and your intended ownership period. Tell Douglas whether the goal is cash flow, a shorter repayment period or a change in rate risk. Share statements and income records only through the application channel.
Use ECHL's refinance comparison flow as a starting point. Request a written comparison that includes insurance and costs before deciding that a change in loan program is an improvement.
Sources & further reading
- HUD — 13 04ml
- HUD — 2023 05hsgml
- Consumer Financial Protection Bureau — what is private mortgage insurance en 122
- HUD — streamline
- Fannie Mae Selling Guide — general requirements credit scores
- Consumer Financial Protection Bureau — loan estimate
This article is maintained by Equity Capital Home Loans. Program rules can change. Confirm the requirements for your property and loan before making a decision.