Refinancing An FHA Loan To Conventional (2024)

FAQs

Is it worth refinancing from FHA to conventional? ›

While conventional loan interest rates are typically a bit higher than FHA rates, you could still get a lower interest rate and save money if current refinance rates are lower than when you first took out the loan. A lower interest rate could potentially save you thousands of dollars.

Yes, you can refinance your FHA loan to a conventional loan. Many borrowers do just that once they've increased their credit score and built equity in their homes. Many borrowers refinance an FHA loan to conventional to eliminate the required mortgage insurance on FHA loans.

There are no time limits on how soon you can refinance from FHA to conventional. As long as you qualify and there's a financial benefit, you don't have to wait to make the change.

While FHA Simple and FHA Streamline refinances are only available to homeowners with existing FHA loans, both the FHA cash-out refinance and FHA 203(k) refinance options are available to homeowners with all loan types. This means borrowers can refinance a conventional mortgage into an FHA loan.

Sellers often prefer conventional mortgages because they usually offer lower interest rates and the qualification requirements can be more lenient than those of an FHA loan. Additionally, with conventional loans, sellers may not have to pay private mortgage insurance or other upfront costs associated with an FHA loan.

FHA loans generally accept modest credit scores: Borrowers with lower credit scores or credit challenges are frequently approved. Conventional loans generally favor higher credit scores: Borrowers tend to need moderate to high credit scores to receive opportune loan terms and rates.

FHA loans, which are federally backed mortgages designed for low- and moderate-income borrowers, do not have any prepayment penalties.

While you can qualify for a conforming conventional mortgage with a down payment of 5% or even 3%, you can expect a lender to want at least 20% down with a jumbo loan. Another difference between conforming and non-conforming conventional home loans is the interest rate.

You pay closing costs and fees when you close on a refinance – just like when you signed on your original loan. You might see appraisal fees, attorney fees and title insurance fees all rolled up into closing costs. Generally, you'll pay about 3% – 6% of your refinance loan's value in closing costs.

What is the FHA 12 month rule? ›

FHA First Mortgage

Borrower must have owned property for 12 months AND if encumbered by a mortgage made payments for the last 12 months within the month due.

You could eliminate your FHA mortgage insurance premium without refinancing, but only if one of these two scenarios applies to you: Your loan origination date was between Jan. 1, 2001, and June 2, 2013. In this case, your MIP will be canceled when you reach a loan-to-value ratio of 78%, or have 22% equity in your home.

A major benefit of a conventional loan is that the buyer often has higher credit ratings and more capital available for a down payment than with an FHA loan. On the other hand, FHA loans may be attractive to some sellers since they only require a small downpayment and have traditionally lower closing costs.

Which loan is better: FHA or conventional? To a large extent, that depends on you and your financial profile. Generally, a conventional loan is best for those with strong credit and a bigger home buying budget. If your credit score is below 620, a loan backed by the FHA might be your only option.