If you currently have an FHA loan and want to lower your monthly payments, cut long-term costs, or eliminate mortgage insurance, refinancing to a conventional loan could be a smart financial move.
This strategy is especially popular among homeowners who have built up equity and improved their credit profile since buying their home. By making the switch, many borrowers can secure better interest rates, eliminate FHA mortgage insurance premiums (MIP), and enjoy more flexible loan terms.
The government doesn’t back conventional loans, unlike FHA loans. This means they come with stricter qualification requirements. However, if you can meet those standards, the long-term benefits can be significant.
How Soon Can I Refinance an FHA Loan?
If you're going for a rate-and-term refinance, where you're simply adjusting your loan’s interest rate or length, you can usually make the switch after just six consecutive on-time monthly payments.
Thinking about a cash-out refinance instead? This option, which lets you replace your current mortgage with a larger one and pocket the difference, typically requires having your FHA loan for at least 12 months. You’ll also need to have built up a healthy amount of equity, usually 20% or more, to qualify.
Of course, timing isn't the only piece of the puzzle. Your credit score, payment history, and debt-to-income (DTI) ratio all play important roles in determining whether you can make the leap to a conventional loan. A strong record of on-time payments, rising home equity, and a solid credit profile will boost your chances and possibly unlock better rates and terms.
The bottom line? If you’ve been keeping up with your mortgage and your finances have improved, you may be ready to refinance sooner than you think.
When It Makes Sense to Refinance From FHA to Conventional
An FHA to conventional refinance is most beneficial when it results in meaningful savings. While the benefits can vary depending on your financial profile and market conditions, here are some common scenarios where a refinance makes sense:
Removing FHA Mortgage Insurance Premium (MIP): FHA loans require mortgage insurance premiums, both upfront and annually. For loans originated after June 2013, this MIP typically lasts for the life of the loan unless you refinance into a conventional mortgage. If you've built at least 20% equity in your home, refinancing to a conventional loan can eliminate this insurance cost altogether, saving hundreds of dollars per month and thousands over the life of the loan.
Improved Credit Score: If your credit score has significantly improved since you first took out your FHA loan, you may now qualify for a better interest rate with a conventional loan. Even a small reduction in your interest rate can lead to noticeable monthly and long-term savings.
Lower Market Interest Rates: Interest rates fluctuate. If rates have dropped since you got your FHA loan, refinancing to a conventional loan could lock in a lower rate. This results in reduced monthly payments and less interest paid over time.
Switching from an Adjustable-Rate to a Fixed-Rate Mortgage: FHA loans are available in both fixed- and adjustable-rate formats. If you initially opted for an FHA adjustable-rate mortgage (ARM) but are concerned about future rate hikes, refinancing to a conventional fixed-rate loan can provide stability and peace of mind.
How Much Does It Cost to Refinance from FHA to Conventional?
Refinancing isn’t free, so it’s important to weigh the costs against potential savings. On average, closing costs for a refinance range from 2% to 6% of the loan amount. For example, a $300,000 loan could translate to anywhere between $6,000 and $18,000 in fees.
Typical Refinance Costs in 2025
In 2025, the average cost to refinance a loan from FHA to conventional ranges from 2% to 6% of the total loan amount. Here’s a breakdown of the fee types to expect:
| Fee Type | Typical Cost |
|---|---|
| Loan Origination Fee | 0.5% to 2% of the loan amount |
| Appraisal Fee | $400 to $900 (varies by property type and location) |
| Credit Report Fee | Up to $100 for a 3-in-1 credit report |
| Title Search and Insurance | $700 to $900 (varies by state and property value) |
| Recording Fees | $25 to $250 (based on local government rates) |
| Attorney or Notary Fees | $500 to $1,000 (depending on state requirements) |
To determine if refinancing is financially beneficial, calculate your break-even point: the time it takes for your monthly savings to offset the upfront costs. To find the break-even point, divide all of your refinance fees by your monthly savings.
For example, if your refinance costs total $7,000 and you’ll save $200 per month on your new loan, you can calculate the break-even point by dividing $7,000 by $200, which equals 35 months, or just under three years. If you plan to stay in your home longer than that, refinancing is likely worth it.
Some lenders also offer no-closing-cost refinance options. These typically involve a slightly higher interest rate or the option to roll the costs into the loan amount. While these options reduce upfront expenses, they could increase the total loan costs over time.
Conventional Refinance Loan Types
When moving from an FHA to a conventional loan, there are two main types of refinance loans to consider: rate-and-term refinance and cash-out refinance.
Rate and Term Refinance
The rate-and-term refinance is the most common and straightforward option. It allows you to change the interest rate, loan term, or both, without taking any cash out. Qualifying for it is also easier because it doesn’t require a certain amount of equity in the home.
Homeowners typically pursue this type of refinance to secure a lower monthly payment, shorten their loan term, or switch from an adjustable-rate to a fixed-rate mortgage. The advantages of a rate-and-term refinance include lower monthly payments, the potential elimination of mortgage insurance premiums (MIP), and the stability of a fixed-rate loan.
Keep in mind that it still incurs closing costs and requires qualifying credit and equity.
Cash-Out Refinance
A cash-out refinance replaces your existing mortgage with a new, larger one and allows you to take the difference in cash. This type of refinance is ideal for homeowners who want to consolidate debt, finance home renovations, or cover significant expenses.
However, cash-out refinances from FHA to conventional typically require strong equity (usually 20% or more) and stricter credit standards. The benefits of a cash-out refinance include access to home equity in cash and the potential to eliminate FHA MIP. However, along with the stricter qualification criteria, it also comes with a higher loan balance, increased risk if property values decline, and higher closing costs.
Requirements for Refinancing From FHA to Conventional
Since conventional loans are not government-backed, lenders apply stricter qualification standards than FHA loans. So, before considering refinancing from FHA to conventional, ensuring you meet the typical requirements is essential. One of the first things lenders look at is your credit score.
A Credit Score of 740+ is Ideal
Most lenders require a minimum score of 620 to qualify for a conventional loan, but the best interest rates are typically reserved for those with a score of 740 or higher. If your credit has improved since you took out your FHA loan, now may be an ideal time to refinance, as a higher credit score could open the door to more favorable loan terms. Along with your credit score, lenders also assess your home equity.
20% Home Equity for Cash-Out or PMI Removal
You need at least 20% equity in your home to avoid paying private mortgage insurance (PMI) on a conventional loan and to get a cash-out refinance loan in general. If your home has appreciated in value or you’ve paid down your loan significantly, you may already have enough equity to make this transition. If not, consider the potential for increased home value through market trends or home improvements.
43% DTI or Lower
Another key requirement is your debt-to-income (DTI) ratio, which conventional loans typically limit to 43% or lower. The DTI ratio is calculated by dividing your total monthly debts by your gross monthly income. A lower DTI indicates to lenders that you're financially stable and less of a risk, making it more likely to qualify for refinancing.
However, some lenders may allow a slightly higher DTI with strong compensating factors, such as a higher credit score or substantial savings.
Income and Employment Verification
In addition to credit score and equity, lenders also look for consistent, verifiable income. You should be able to show proof of steady income over the past two years, whether from salary, bonuses, freelance work, or other documented sources. If you're self-employed, you may need to provide additional documentation, such as tax returns or profit and loss statements, to verify your income stability.
New Home Appraisal
A home appraisal is also an important part of the refinancing process. Lenders often require a new appraisal to determine the current value of your home, which directly affects your loan-to-value (LTV) ratio to ensure you meet the equity requirements needed for conventional financing.
The appraised value helps lenders assess the risk of the loan and confirms that your borrowed amount matches your property’s value. Meeting these requirements can unlock better loan terms, lower monthly payments, and increased financial freedom. Carefully review your financial situation and work closely with your lender to determine the best strategy for refinancing.
Whether your goal is to remove mortgage insurance (MIP), secure a lower interest rate, or tap into your home’s equity for other financial objectives, refinancing from FHA to conventional can be a smart move that offers long-term benefits. With proper preparation and expert lender guidance, the refinancing process can be smooth and empowering, setting you up for greater financial stability.
