Refinancing From an FHA Loan to a Conventional Loan
An FHA loan is a great way to buy a home, especially with a smaller down payment. But it comes with a catch that surprises a lot of owners: on most FHA loans today, the mortgage insurance premium sticks around for the life of the loan. You can't cancel it just by building equity. The way out is to refinance into a conventional loan, which drops mortgage insurance once you own enough of your home. Whether that move saves you money comes down to your equity, your credit, and the cost of the refinance.
Compare FHA and conventionalQuick answer
Refinancing from FHA to conventional is mainly about getting rid of the mortgage insurance premium (MIP), which on most current FHA loans lasts the entire loan. Once you have about 20% equity and a credit score generally in the mid-600s or higher, a conventional refinance can drop that insurance for good. It only makes sense if your monthly savings beat the closing costs. If you don't yet have 20% equity, an FHA streamline refinance is often the smarter step instead.
What you'll learn
- Why FHA mortgage insurance often lasts the life of the loan
- The 20%-equity threshold that lets conventional drop insurance
- Credit scores that make a conventional refinance realistic
- When an FHA streamline is the better move
- Costs and the step-by-step process
Why people leave FHA loans
The FHA loan did its job: it got you into the house. But here's the part that bothers owners once they understand it. On most FHA loans written today, the mortgage insurance premium — MIP for short — stays on the loan for as long as you have it. Building equity doesn't cancel it the way it would on a conventional loan. For many owners that's an extra couple hundred dollars a month, forever, long after they've built real equity. Refinancing into a conventional loan is the standard way to shed it.
The 20% equity math
The reason 20% is the magic number is simple: conventional loans don't require mortgage insurance once your loan is 80% or less of the home's value. So if your home is worth $500,000, you'd want your new loan at $400,000 or below. Home values in much of California have climbed, so plenty of owners hit 20% faster than they expect — through a mix of paying down the balance and rising value. An appraisal confirms where you stand. If the number lands at or above 20%, a conventional refinance can wipe out that monthly insurance entirely.
Example figures are illustrative. Your equity is confirmed by an appraisal and depends on your current balance and market value.
The credit you'll want
Conventional loans price by credit score more sharply than FHA does. To make the switch worthwhile, you'll generally want a score in the mid-600s at minimum, and the higher it climbs, the better your rate and the smaller any remaining insurance cost if you're just under 20%. If your credit has improved since you bought — which is common a few years in — you may qualify for terms that make the move clearly worth it. If your score is still rebuilding, it may be worth waiting or looking at a streamline instead.
When an FHA streamline beats switching
Going conventional isn't always the right call, and it's fair to say so. If you don't have 20% equity yet, or your credit isn't where you'd want it, an FHA streamline refinance can lower your rate with less paperwork and often no new appraisal — while keeping the FHA loan. You won't shed the mortgage insurance that way, but you can still cut your payment. Here's the trade-off at a glance.
| Feature | FHA streamline | Conventional refinance |
|---|---|---|
| Mortgage insurance | Stays on the loan | Drops at about 20% equity |
| Equity needed | Little to none | About 20% |
| Credit check | Lighter, often no new appraisal | Full review, appraisal required |
| Best when | You want a lower rate fast | You have equity and want to end MIP |
Illustrative comparison. Actual eligibility and savings depend on your loan, credit, and home value.
What it costs
A refinance to conventional carries normal closing costs — appraisal, title, lender fees, and the like. The way to judge whether it's worth it is the same as any refinance: add up the costs, then see how many months of savings it takes to recover them. If dropping MIP and adjusting your rate saves you $300 a month and the refinance costs $6,000, you break even in 20 months. Keep the home past that and you're ahead. Any figure here is an estimate until you have a real quote in hand.
The step-by-step
Making the switch follows a clear path.
- Confirm your goal — usually ending mortgage insurance — and roughly where your equity stands.
- Check your credit so you know what conventional terms are realistic.
- Get an estimate of your home's value to see whether you're near the 20% mark.
- Compare a conventional refinance against an FHA streamline to see which saves more.
- Order the appraisal, review your terms, and close on the loan that fits.
Key takeaways
- On most FHA loans issued today, the mortgage insurance premium never falls off — refinancing to conventional is the usual exit.
- Conventional loans cancel mortgage insurance once you reach about 20% equity, which is the whole point of switching.
- You'll generally want a credit score in the mid-600s or higher and 20% equity for the move to work.
- If you don't have 20% equity yet, an FHA streamline refinance can lower your rate without a full switch.
- Compare your monthly savings against closing costs — the switch only pays if you clear your break-even point.
Common questions
Why would I refinance from FHA to conventional?
The main reason is to get rid of the mortgage insurance premium, which on most current FHA loans lasts the entire loan. A conventional loan cancels mortgage insurance once you reach about 20% equity, so switching can end that monthly cost for good.
How much equity do I need to refinance FHA to conventional?
About 20%. Conventional loans drop mortgage insurance when your loan is 80% or less of the home's value. An appraisal confirms your equity, and rising home values plus paydown often get owners there faster than they expect.
What credit score do I need to switch to conventional?
You'll generally want a score in the mid-600s or higher. Conventional loans price by credit more sharply than FHA, so a stronger score means a better rate. If your credit improved since you bought, the move may be more worthwhile now.
Is an FHA streamline better than going conventional?
It can be, if you don't have 20% equity yet or your credit is still rebuilding. A streamline lowers your rate with lighter paperwork and often no new appraisal, but it keeps the FHA mortgage insurance. Conventional is the move when you have the equity to end MIP.
How much does it cost to refinance from FHA to conventional?
Expect normal closing costs — appraisal, title, and lender fees. Whether it pays comes down to your break-even point: divide the closing costs by your monthly savings. If you'll keep the home past that many months, the switch usually makes sense. Any quote is an estimate until locked.