Can You Refinance an FHA Loan to a Conventional?

Man shaking hands with the closing attorneyAre you currently carrying an FHA loan and considering a switch to a conventional loan? You're in the right place! In this comprehensive guide, we'll explore the possibility of refinancing your FHA loan into a conventional loan. Refinancing can be a smart financial move, allowing you to potentially secure better loan terms, remove mortgage insurance, and even lower your monthly payments. Whether you're looking to reduce your interest rate or change your loan structure, understanding the process and benefits of refinancing from an FHA loan to a conventional loan is essential. So, let's dive in and discover how you can explore the option of refinancing and potentially transition from an FHA loan to a conventional loan.

What Does It Mean to Refinance an FHA Loan to a Conventional Loan?

Conventional loans require a higher down payment and a better credit score than an FHA loan. They also require proof of income and private mortgage insurance (PMI) if the down payment is less than 20% of the purchase price. Conventional loan terms are typically 15 or 30 years.

On the other hand, FHA loans require a lower down payment and credit score than conventional loans. Monthly mortgage insurance is required for the life of the loan, regardless of the down payment amount. Cash-out refinance loans are also available with the FHA.

If you currently have an FHA loan but want to switch to a conventional mortgage, refinancing to a conventional mortgage may be an option. However, you will need to meet the requirements of a conventional loan, including proof of income and a higher credit score. Your monthly mortgage payment may be higher or lower depending on your current and new loan terms.

What is a conventional loan?

Homeowners with an FHA loan may benefit from refinancing to another loan, such as a new conventional loan, to eliminate mortgage insurance premiums. FHA loans require an upfront mortgage insurance premium and an annual premium, whereas a conventional mortgage may not require either.

Additionally, the interest rates for conventional loans may be lower than FHA rates, resulting in cost savings throughout a 30-year loan. Refinancing from an FHA loan to a conventional loan may be streamlined, making it easier for homeowners to experience the benefits of conventional loan homeownership.

However, it's important to note that lenders will set their own down payment and credit score requirements for a conventional loan. An FHA-to-conventional refinance may be wise for those who qualify and want to save money over the long term on their first mortgage.

How Can You Refinance an FHA Loan to a Conventional Loan?

If you're searching for a way to reduce interest rates, refinancing your FHA loan to a conventional loan may be the solution. By obtaining a conventional loan, you can save significant money on your monthly payments. To initiate this process, you'll want to contact a loan officer and begin collecting the necessary financial documentation.

Remember that there are differences between FHA and conventional loans, such as requirements for employment and mortgage insurance premiums. Refinancing your FHA loan to a conventional mortgage might be a beneficial option for you, given that an FHA loan may have requirements that prevent you from getting a conventional loan.

What are the pros and cons of refinancing an FHA loan to a conventional one?

Refinancing your FHA loan into a conventional loan has several advantages. Opting for a conventional loan refinance can lead to a lower monthly mortgage payment due to a potentially lower interest rate. Moreover, conventional loans do not require monthly mortgage insurance premiums (MIP), which can result in long-term savings over the life of your loan.

Adjustable-rate loans can be swapped for a fixed-rate conventional loan to save on long-term costs. However, it's essential to consider potential appraisal fees as part of the refinancing process.

Cons of Refinancing

Refinancing your FHA loan into another FHA loan or a conventional mortgage can offer certain benefits, but it may not be the right choice for everyone. Refinancing can help you attain a lower interest rate, convert to a fixed-rate loan, and tap into your home's equity.

However, qualifying for a conventional loan may be difficult if your credit score has declined. Additionally, if you opt for a conventional mortgage, you might face more burdensome down payment requirements, which could be challenging if you're low on savings. So, before refinancing your FHA loan, make sure that you consider all the pros and cons of refinancing.

When is a good time to refinance?

The best time to refinance from an FHA loan to a conventional loan depends on your current situation. If you have a high credit score and significant savings, now may be the right time to refinance. Additionally, if mortgage rates have decreased since you obtained your FHA loan, it may be worth exploring your refinancing options.

How does refinancing from FHA to conventional work?

To be eligible for an FHA mortgage, you must meet certain criteria, including specific loan limits and a manageable debt-to-income ratio. However, if you have an original loan through a traditional lender, you may refinance with a conventional loan instead.

To apply for a conventional mortgage or loan refinance, lenders typically look for a minimum credit score of 620, a debt-to-income ratio below 43 percent, and a stable employment history. You'll also need at least 20% home equity to avoid paying private mortgage insurance (PMI).

How is refinancing different from an FHA streamline refinance?

When considering a 30-year loan, it's essential to understand the options for refinancing. An FHA streamlined refinance is a simplified process to refinance into another FHA loan without needing proof of income or an appraisal.

However, refinancing to a conventional loan may be a better option if you want to remove the mortgage insurance premiums associated with your current loan. Remember that this process may require more documentation and a longer approval time, but it's a way to refinance an FHA loan into a conventional loan and save money in the long run.

Does refinancing conventionally save money?

Refinancing your FHA loan to a conventional loan can result in significant savings over time. Unlike government-insured loans, conventional loans don't require mortgage insurance payments, which can save you thousands of dollars over the life of your loan. Additionally, interest rates on conventional loans may be lower, which can further reduce your monthly payments.

When refinancing, it's essential to consider appraisal fees and compare lenders' rates to find the best deal. Your credit score and equity in your home will also play a role in your eligibility for a conventional loan. Understanding the differences between FHA and conventional loans is essential, including down payment requirements and credit score standards. Refinancing a conventional loan can yield significant financial benefits with careful consideration and research.

What are the costs associated with refinancing from FHA to conventional?

Like any mortgage, fees are associated with refinancing from an FHA loan to a conventional loan. These include closing costs, appraisal fees, and any taxes associated with recording the new mortgage. However, some lenders may offer to waive some of these fees, so shopping around for the best deal is essential.

What is the new interest rate?

The interest rate on a conventional loan may vary based on credit score, down payment, and other financial factors. Therefore, it's essential to research and compare rates from different lenders to ensure you are getting the best deal on your new mortgage.

What is the life of the loan?

The life of the loan will depend on the type of mortgage you obtain with the conventional loan. You can generally choose between a 15-year or 30-year fixed-rate mortgage. It's essential to consider your financial situation and long-term goals when choosing the length of your loan.

What about mortgage insurance?

Mortgage Insurance Premium (MIP) is a type of insurance that is required on all FHA loans. It's a way for the lender to ensure they are protected if the borrower defaults. The upfront MIP is a one-time fee, while the annual MIP is paid monthly as a part of the mortgage payment.

What is private mortgage insurance (PMI)?

Private mortgage insurance (PMI) is similar to MIP, but it's associated with conventional loans. PMI is typically required if your down payment exceeds 20% of the total loan balance. The purpose of PMI is to protect the lender in case the borrower defaults on the loan.

How much will I pay for PMI?

The cost of PMI can vary based on the size of your down payment, your credit score, and other factors. However, PMI can cost anywhere from 0.5% to 5% of the total loan amount. Considering this cost when refinancing from an FHA loan to a conventional loan is essential.

In conclusion, refinancing from an FHA loan to a conventional loan can be an excellent option for homeowners who want to save money in the long run or those who want to remove MIP payments from their mortgage payments. However, weighing the pros and cons of refinancing and considering your unique financial situation before making any decisions is critical. As always, it's essential to shop around for the best deal and work with a trusted mortgage lender like Rocket Mortgage to ensure a smooth loan approval process.


In conclusion, refinancing your FHA loan into a conventional loan can be a strategic financial decision, offering you the opportunity to secure better loan terms, eliminate mortgage insurance, and potentially lower your monthly payments. By exploring the refinancing process and consulting with a mortgage professional, you can assess your eligibility, evaluate the potential benefits, and make an informed decision that aligns with your financial goals. Keep in mind that each individual's situation is unique, and it's crucial to consider factors such as credit score, loan-to-value ratio, and overall financial health when determining the feasibility of refinancing. With the right guidance and a clear understanding of the refinancing process, you can potentially transition from an FHA loan to a conventional loan, unlocking new opportunities and optimizing your mortgage terms.