You can refinance an FHA loan to a conventional mortgage, and it may be worth it if you’ll reap a specific financial benefit — like lowering your monthly mortgage payments, saving on overall interest charges or reducing your mortgage insurance costs.
There are, however, stricter requirements you must meet in order to switch from an FHA loan to a conventional mortgage. We’ll cover the advantages and drawbacks of refinancing an FHA loan to a conventional loan, as well as common alternatives.
Getting a mortgage is one of the biggest financial decisions you’ll make, Understanding the differences between loan types like FHA and conventional loans can help ensure you make the right choice,
Many people who want to buy a home start with an FHA loan. These loans have less strict requirements, so people with lower credit scores and higher debt-to-income ratios can still become homeowners. However, an FHA loan isn’t always the best long-term financing option.
You might want to switch to a conventional loan when your finances get better. Here’s what to know about making the switch.
What Are FHA and Conventional Loans?
FHA loans are mortgages backed by the government and backed by the Federal Housing Administration (FHA). This backing makes them easier for buyers with bad credit to get who might not be able to get other types of financing.
Some key features of FHA loans include:
- Lower minimum credit scores, starting at 500
- Higher debt-to-income ratio allowed, up to 57%
- Low down payment options of 3.5%
- Mortgage insurance is required
Conventional loans meet the underwriting guidelines set by Fannie Mae and Freddie Mac. They typically have stricter eligibility requirements than FHA loans.
Some key features of conventional loans include:
- Minimum credit scores around 620
- Maximum debt-to-income ratio of 50%
- Minimum down payment of 5% is common
- Private mortgage insurance may be required
Can You Switch from an FHA to a Conventional Loan?
Yes, you can refinance an FHA loan into a conventional loan. It allows you to take advantage of better terms and rates that may now be available to you.
Here are some reasons you may want to make the switch:
To cancel mortgage insurance (MI)
With an FHA loan, you pay mortgage insurance premiums for the life of the loan if your down payment is under 10%. With a conventional loan, you can cancel MI once you reach 20% equity.
To get a lower interest rate
Current rates may be lower than your existing FHA rate. Refinancing can lower your monthly payment.
To tap into home equity
A cash-out refinance allows you to access your home’s equity. Conventional loans allow up to 80% loan-to-value for this, compared to 90% with an FHA cash-out refinance.
To remove a cosigner
If your finances have improved since getting an FHA loan, you may qualify for the refinance on your own and remove the cosigner.
Refinancing FHA Loan Requirements
To qualify to refinance from FHA to conventional, you’ll need:
- Credit score of at least 620
- Debt-to-income ratio below 50%
- Loan-to-value ratio of 97% or lower
- On-time mortgage payments for the past 12 months
- Home appraisal to confirm home value
Closing costs, including appraisal fees, title insurance, and more will range from 2-5% of your loan amount.
Pros and Cons of Switching from FHA to Conventional
Here are some key advantages and disadvantages to weigh:
Pros
- Cancel mortgage insurance
- Access home equity
- Lower interest rate and payment
- Remove cosigner liability
Cons
- Stricter qualifying criteria
- Higher interest rate than FHA
- Pay closing costs and fees
- Lose FHA streamline refinance option
Alternatives to Refinancing FHA Loan
If refinancing to conventional isn’t the right option, consider:
FHA streamline refinance – Lowers rate/payment without appraisal or income verification
FHA cash-out refinance – Access equity while keeping mortgage insurance
VA loan refinance – For those eligible for VA loans; no mortgage insurance
Is Refinancing from FHA to Conventional Right for You?
Refinancing an FHA loan to a conventional mortgage can provide financial benefits if you meet eligibility requirements. But make sure to weigh the pros and cons to determine if it aligns with your home financing goals.
Getting pre-qualified can help you understand new loan options and interest rates available to you with both FHA and conventional loans. Comparing total monthly payments and costs can help make clear if refinancing is your best move.
Why should I refinance from an FHA to a conventional loan?
Before you take the leap to refinance, make sure you’ll benefit financially. Here are some of the best reasons to refinance from an FHA loan to a conventional loan:
- To shorten your loan term. If you switch from a 30-year loan to a 15-year loan, you can save a lot of money on interest. Also, 15-year mortgage rates are often lower than 30-year rates, which means you can save even more.
- To get rid of mortgage insurance. You might not have to pay monthly mortgage insurance if you switch from an FHA loan to a conventional loan. Most conventional loans don’t need mortgage insurance if you own your home outright or have at least 20% equity.
- So you don’t have to pay for mortgage insurance for as long, One bad thing about FHA loans with a small down payment is that you have to pay FHA mortgage insurance every month for as long as the loan lasts. If you don’t have 20% equity in your home and have a conventional loan, you may still have to pay private mortgage insurance (PMI), but it goes away automatically once you pay off your loan balance to 2078% of the original value. You can also ask for PMI cancellation if you’ve made extra payments to bring your loan balance down to 80% of your home’s original value. ).
- To get a loan for more than what the FHA loan limits allow For most of the country, the most you can borrow on a conventional conforming loan for a single-family home is $806,500 as of 2025. For one-unit homes in most U.S. cities, the FHA loan limit is only $524,225. S. counties.
- To tap home equity without paying mortgage insurance again. With either an FHA or a conventional cash-out refinance, you can borrow up to 80% of the value of your home. A conventional cash-out refinance loan, on the other hand, does not need mortgage insurance like an FHA cash-out refinance loan does.
- That you want to refinance faster than you could with an FHA streamline refinance When you can switch from an FHA loan to a conventional loan is not limited. You will need to have made at least six payments on your current FHA loan, though, in order to be eligible for an FHA streamline refinance.
- To separate your finances from a spouse or co-borrower, such as: Getting rid of a cosigner on your mortgage You might be able to get rid of a family member or parent who cosigned your FHA loan if you make more money now than you did when you bought the house. To leave a spouse’s finances out of the picture. Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, or Wisconsin are community property states. This means that when you apply for an FHA loan, your spouse’s debt is counted, even if they’re not on the loan. You can leave your spouse and their debt off of a regular loan refinance, though, no matter where you live.
You can use a mortgage refinance calculator to figure out how much the refinance will cost and how much it will save you in the long run.
Can you refinance an FHA loan to a conventional loan?
Yes, as long as you qualify for the conventional loan. You’ll need a higher credit score and lower debt-to-income (DTI) ratio to get the best rate on a conventional loan versus one backed by the Federal Housing Administration (FHA).
You may qualify to refinance an FHA loan to a conventional loan if:
- Your credit score is higher. For conventional financing, you need a credit score of at least 620. For an FHA loan, you only need a credit score of 500.
- You’ve paid off a lot of debt. Lenders that are used to dealing with people like you want your monthly debt to be 45% or less of your income.
- You’re borrowing within conventional limits. Your loan-to-value (LTV) ratio tells lenders how much you’re borrowing compared to how much your home is worth. These days, conventional lenders set a maximum LTV ratio of 2097% for rate-and-term refinances and an 80% limit for cash-out refinance loans.
- You can afford closing costs and fees. When you refinance your mortgage, it usually costs 2% to 6% of the amount you borrowed.
Read more about the minimum requirements for a refinance.
If you have an FHA mortgage, you may want to switch to a Conventional | Homespire Mortgage
FAQ
Should you refinance an FHA and switch to a conventional loan?
People who want to refinance an FHA loan and switch to a conventional loan don’t have to wait. But that doesn’t mean it’s automatically a good idea. When you refinance a mortgage, you want to benefit — maybe enjoy lower monthly payments, or perhaps save money on interest over the loan term.
What is the difference between a conventional and FHA loan?
Stricter requirements: Conventional loans have more stringent qualifications, including the need for a higher credit score and a lower DTI than is necessary to get an FHA loan. Closing costs: Any time you refinance, there are origination charges and other fees associated with the costs of getting a new loan.
Can you refinance a conventional loan?
Yes, you can refinance from an FHA loan to a conventional loan within six months. However, you would first want to consider whether doing so would save you money. When is the best time to refinance a conventional loan? Most of the time, you can refinance a conventional loan right away.
Can I refinance my existing FHA loan?
Instead of a conventional loan, you can choose to refinance your existing FHA loan to another FHA loan using a few options: • FHA streamline refinance: A streamline refinance allows for limited documentation and underwriting.
How soon can I refinance from FHA to conventional?
There are no time limits on how soon you can refinance from FHA to conventional. However, you’ll need to make at least six payments on your current FHA loan to take advantage of the easy qualifying guidelines of an FHA streamline refinance. To remove a cosigner from your mortgage.
Are FHA loans a good choice for first-time homebuyers?
Borrowers can usually meet FHA loan requirements with a lower credit score, and can provide a lower down payment than would be necessary with some conventional loans. For this reason, FHA loans are popular with first-time homebuyers. A conventional loan, on the other hand, is a home mortgage loan not backed by the federal government.
How long do you have to keep a house with an FHA loan?
What are the FHA occupancy requirements for a home? Boughters must live in the house as their main home for at least one year. Can I rent out my FHA home after the first year? Yes, after fulfilling the initial one-year occupancy requirement, you can rent out your FHA home.
Why do realtors prefer conventional over FHA?
Comments Section Generally speaking conventional is considered “better”. FHA has a few more hoops to jump through and typically you pay more up front. Either is good, but Conventional makes the purchase for you and the seller way more easy.
Can you streamline from FHA to conventional?
You can refinance an FHA loan to a conventional mortgage, and it may be worth it if you’ll reap a specific financial benefit — like lowering your monthly …Jan 21, 2025
Is it better to go with an FHA or a conventional loan?
If you have a high credit score, money saved for a decent down payment and a low DTI, a conventional loan might be best for you, whereas if you’re struggling …Mar 28, 2024