If you have an FHA loan and you're thinking about refinancing, you actually have three different options — and they work very differently from each other. Most borrowers assume they'll do a quick FHA Streamline Refinance and call it a day. But depending on how much equity you've built and what you need, a different path might save you far more money over time. So before you pick a direction, it helps to understand what each option actually does.

How an FHA Refinance Loan Works

Refinancing an FHA loan means replacing your existing mortgage with a new one. You might do this to get a lower interest rate, cut your monthly payment, access your home's equity, or drop mortgage insurance altogether. The path you take depends on your goal.

FHA loans are common. According to HUD's Fiscal Year 2024 Annual Report to Congress, FHA-insured mortgages represented approximately 12.8% of all single-family mortgage originations in the U.S. in fiscal year 2024. That's a large pool of homeowners who may have refinance options worth looking at.

There are three main types of FHA refinance loans: the FHA Streamline Refinance, the FHA cash-out refinance, and a refinance from FHA into a conventional loan. Each one has its own rules, requirements, and trade-offs. We'll walk through each one below.

The FHA Streamline Refinance

The FHA Streamline Refinance is built for speed. In most cases, you don't need a new appraisal. You don't need to verify your income. And depending on your credit profile, your lender may not even pull a new credit report. That makes it one of the faster refinance options available.

But there's a catch. The new loan has to actually improve your situation. Per HUD Handbook 4000.1, an FHA Streamline Refinance must reduce the borrower's combined interest rate and annual mortgage insurance premium by at least 0.5 percentage points to satisfy the net tangible benefit requirement. So if rates haven't dropped enough, you might not qualify — even if everything else looks fine.

One scenario where the Streamline really shines: underwater homes. If you owe more than your home is worth, a standard refinance often hits a wall. But with the FHA Streamline, no appraisal means no LTV problem. We've seen borrowers in this situation use the Streamline to drop their rate by half a point or more, which adds up quickly over the life of the loan.

However, the Streamline keeps you inside the FHA system. You'll keep paying mortgage insurance. If your home has gone up in value and you've built equity, that's worth thinking about before you choose this path.

FHA Cash-Out Refinance

The FHA cash-out refinance lets you tap your home's equity by borrowing more than you currently owe. You get the difference in cash. Borrowers use it for home repairs, debt payoff, or other large expenses.

There's a firm limit on how much you can pull out. Per HUD Mortgagee Letter 2019-11, the maximum loan-to-value ratio for FHA cash-out refinances is 80% of the property's appraised value. That means if your home appraises at $400,000, the most you can borrow is $320,000 — so you'd need enough existing equity to make that work after paying off your current loan.

Unlike the Streamline, cash-out requires a full appraisal, a credit review, and income verification. It also requires a new mortgage insurance premium. For 2026, the FHA loan limit for single-family homes in most U.S. counties is $524,225, according to HUD — so your new loan amount can't go above that figure in standard-cost areas.

You can check current FHA loan limits by county on HUD's mortgage limits page. High-cost counties like those in metro Denver or South Florida carry higher caps.

One thing to consider: because the FHA cash-out limit is 80% LTV, some borrowers find a conventional cash-out refinance gives them more flexibility — especially if they have strong credit. That's a conversation worth having before assuming FHA is the only route.

Switching from FHA to a Conventional Loan

This is the option most articles gloss over — but for many borrowers, it's the most valuable one.

FHA loans carry mortgage insurance for the life of the loan in most cases. That's not a small cost. According to HUD, the annual FHA mortgage insurance premium for most 30-year loans sits at 0.55% of the remaining loan balance, following the rate reduction that took effect in March 2023. On a $350,000 loan, that's roughly $1,925 per year — money going out the door indefinitely.

When you refinance from FHA into a conventional loan with at least 20% equity, that cost disappears. No mortgage insurance at all. So even if the interest rate on the new conventional loan is slightly higher, the removal of MIP can more than make up the difference.

To pull this off, you generally need a credit score of 620 or higher, a solid debt-to-income ratio, and enough home equity to hit that 80% LTV threshold — or be willing to pay private mortgage insurance until you get there. Private mortgage insurance on a conventional loan can be removed once you reach 20% equity, which gives you a clear exit. With FHA, that exit is much harder to reach.

We regularly work with borrowers who took out FHA loans a few years ago, have built equity as home values rose, and are now prime candidates to make this switch. The monthly savings can be significant over the remaining life of the loan.

Do You Meet the FHA Refinance Requirements?

Each refinance type has its own rules, but a few core requirements apply across all FHA refinances. Here's a quick look at what lenders and HUD typically check:

DTI also matters for cash-out and conventional refinances. The CFPB explains how debt-to-income ratios affect mortgage qualification — most lenders want your total monthly debt obligations to stay at or below 43% to 50% of your gross monthly income, though FHA guidelines allow for some flexibility.

Comparing Your Three FHA Refinance Options

What an FHA Refinance Actually Costs

Closing costs don't disappear just because you're refinancing. According to the CFPB, closing costs for a mortgage refinance typically range from 2% to 5% of the loan amount. On a $300,000 loan, that's $6,000 to $15,000.

The "no-cost" refinance is a real option, but it's not free — the lender folds those costs into a slightly higher interest rate. So you're not paying upfront, but you do pay over time. Whether that trade-off makes sense depends on how long you plan to stay in the home.

For FHA refinances, there's also a new upfront mortgage insurance premium (UFMIP) of 1.75% of the loan amount. The good news: if you're refinancing from one FHA loan to another within three years, HUD will credit you back a prorated portion of the UFMIP you paid on your original loan. That can cut the cost meaningfully.

Because of these costs, it's worth running the numbers before committing. A lower rate helps — but the break-even point matters too. If it takes 48 months to recoup your closing costs and you move in 36, the refinance doesn't actually save you money.

If you want to explore more mortgage loan programs beyond FHA, there are options that may fit your situation better — especially if your credit and equity have improved since you first bought.

Frequently Asked Questions