Refinancing FHA to Conventional
The numbers that tell you if refinancing is worth it
Refinancing from FHA to conventional is one of the most common moves homeowners make once they’ve built equity.
The reason is simple: FHA mortgage insurance may follow you for the life of the loan.
This guide is for FHA borrowers who want to know whether the switch makes financial sense right now.
You’ll learn the equity requirements, what lenders evaluate, and how to calculate your break-even point.
By the end, you’ll know whether refinancing makes sense today or whether waiting is the smarter move.
The switch makes sense when your credit has improved and conventional PMI would cost less than your current FHA MIP.
In This Article
What Makes FHA MIP Different from Conventional PMI
Refinancing from FHA to conventional comes down to one core issue: how mortgage insurance works on each loan type. Both have it. But they work in very different ways, and that difference is what drives most FHA-to-conventional refinances.
FHA loans carry two types of mortgage insurance. The upfront mortgage insurance premium (MIP) is 1.75% of the loan amount, paid at closing or rolled into the loan balance. Then there’s an annual MIP of 0.55% for most 30-year loans with less than 10% down, as set by FHA program guidelines at HUD.gov. That sounds manageable. But here’s what catches most borrowers off guard: for anyone who put less than 10% down, that MIP lasts for the entire life of the loan. You can’t cancel it. You can’t ask your servicer to remove it once you’ve built equity. The only path out is to refinance out of the FHA program entirely.
Conventional loan mortgage insurance works on a completely different schedule. Private mortgage insurance (PMI) cancels automatically when your loan balance reaches 78% of the original home value. You can also request cancellation once you reach 20% equity. And unlike FHA MIP, PMI rates adjust based on your credit score. A borrower with a 750 credit score pays less than someone with a 650. FHA MIP charges the same rate regardless of credit.
That gap compounds over time. It’s why so many FHA borrowers eventually start looking at their refinance options once they’ve had the loan for a few years.
How FHA MIP and conventional PMI compare across key factors
| Feature | FHA MIP | Conventional PMI |
|---|---|---|
| Upfront cost | 1.75% of the loan amount | None in most cases |
| Annual rate | 0.55% for most 30-year loans | Varies by credit and LTV, typically 0.2%-1.5% |
| When it ends | Never, for loans with less than 10% down after June 2013 | Auto-cancels at 78% LTV; requestable at 80% |
| Credit score affects rate | No. Same rate for all credit scores. | Yes. Higher scores pay less. |
| How to remove it | Refinance out of FHA | Build equity to 20% |
How Much Equity Do You Need to Refinance from FHA to Conventional?
Twenty percent equity gets you the cleanest outcome: no PMI at all on your new conventional loan. But you don’t have to wait until you hit that number before the switch can make financial sense.
In our experience, FHA borrowers often assume they need to reach 20% before refinancing is worth exploring. The better question is: does switching to conventional PMI cost less than what you’re paying in FHA MIP right now? For many borrowers, the answer is yes even at 85% or 90% loan-to-value.
Here’s why. FHA MIP charges the same rate whether your credit score is 640 or 780. It’s a flat 0.55% for most borrowers. Conventional PMI adjusts for credit. If your credit profile has improved since you closed your FHA loan, you might qualify for conventional PMI at 0.3% to 0.5% annually. That could already be less than what you’re paying in MIP, and conventional PMI will eventually cancel. FHA MIP will not.
Colorado Springs saw 37.74% cumulative home price appreciation over the five years ending in Q4 2025, according to the FHFA House Price Index. Buyers who purchased in 2020 or 2021 may have built meaningful equity through a combination of price gains and monthly payments. More recent Colorado buyers face a slower market: year-over-year appreciation across the state came in below 2% in 2025, according to FHFA data. Florida markets have been mixed, with some metro areas posting flat or declining values in recent quarters, according to Florida Realtors market data. Knowing where you actually stand before assuming the timing is right or wrong matters.
A new appraisal will establish your official equity position. If values in your area have held or grown since you bought, it sometimes comes back better than borrowers expect.
“In our experience, the most common mistake FHA borrowers make is waiting until they hit 20% equity before looking at a conventional refinance. Many of them have been overpaying on mortgage insurance for months or years when the switch would have already made sense.”
Reed Letson, Owner, Elevation Mortgage
What Lenders Look At When You Apply to Refinance
A conventional refinance application looks similar to what you submitted when you bought the home. Income documents, credit review, and a new appraisal are all required. Here’s what underwriting specifically evaluates.
Credit Score
One important update for 2026: as of November 2025, Fannie Mae and Freddie Mac updated their selling guide requirements to remove a universal minimum credit score for conventional loan approval. Loan decisions now reflect a full review of credit risk factors rather than a single score cutoff. Most lenders still set their own minimum thresholds, typically around 620, but the underlying GSE requirement has changed. A higher credit score still gets you a better rate and lower PMI costs, so improving your score before you apply pays off in two ways.
Debt-to-Income Ratio
Most conventional lenders look for a debt-to-income ratio at or below 43% to 50%. That means your total monthly debt payments, including the new mortgage, should not exceed that share of your gross monthly income.
Income and Employment
You’ll need current pay stubs, W-2s, tax returns, and bank statements. Self-employed borrowers or anyone with variable income benefit from working with a lender who understands how to document those situations. Understanding what lenders look at during mortgage approval before you apply is a smart first step.
Appraisal
Every FHA-to-conventional refinance requires a new appraisal. The lender needs a current home value to calculate your LTV and determine whether PMI applies. Because it reflects today’s market conditions rather than your original purchase price, it can work in your favor if values have held or risen in your area.
Payment History
A clean record on your current FHA loan matters. Six months of on-time payments is a standard baseline for a rate-and-term refinance. If you’ve been late even once in that window, expect the lender to ask about it.
On an FHA-to-conventional refinance, these factors interact in ways that affect both your rate and your PMI cost simultaneously. A better rate and lower PMI together produce a shorter break-even than a rate reduction alone, which is why the full picture matters before you apply.
What This Means for Your Situation
If your credit score has improved since you closed your FHA loan, you may qualify for conventional PMI at a lower rate than what you’re currently paying in MIP. That gap, multiplied across several years of payments, adds up to a real number. Running the cost comparison before assuming the timing isn’t right is almost always worth the effort.
How to Calculate Whether Refinancing to Conventional Actually Saves You Money
The math is simple once you have two numbers: your monthly savings and your closing costs. Divide one by the other and you have your break-even point in months.
Refinance closing costs typically run 2% to 6% of the loan amount, according to Mortgage Bankers Association estimates. On a $300,000 loan, that’s $6,000 to $18,000. Most borrowers land toward the lower end of that range when conditions are stable. Conventional refinances closed in an average of 40 days as of October 2025, according to ICE Mortgage Technology data.
Here’s what the math can look like in practice. Say your current FHA MIP costs $137 per month on a $300,000 balance. You qualify for conventional PMI at 0.35%, which runs about $88 per month. The insurance savings alone come to roughly $49 per month. If you also pick up a lower rate on the new loan, total monthly savings could reach $150 to $250 or more. The table below shows break-even timelines at different savings levels, assuming $6,000 in closing costs, which represents 2% of a $300,000 loan.
Break-even timeline at different monthly savings, assumes $6,000 in closing costs
| Monthly Savings | Closing Costs | Months to Break Even | Years to Break Even |
|---|---|---|---|
| $100/month | $6,000 | 60 months | ~5.0 years |
| $150/month | $6,000 | 40 months | ~3.3 years |
| $200/month | $6,000 | 30 months | ~2.5 years |
| $300/month | $6,000 | 20 months | ~1.7 years |
If you plan to stay in the home past your break-even point, refinancing is likely worth the closing cost. If you might sell within a year or two, the math probably doesn’t work in your favor.
One option worth knowing: you can sometimes roll closing costs into the new loan balance. That keeps your out-of-pocket to zero at closing, but it raises your loan amount slightly and increases the monthly payment a small amount. Run both versions of the math before deciding which makes more sense for your situation.
If the refinance numbers don’t work right now, an FHA Streamline refinance is worth exploring. It won’t remove MIP, but it can lower your rate without full underwriting. That reduces your payment while you continue building equity toward a future conventional refinance.
When Refinancing from FHA to Conventional Is the Right Move
In working with Colorado and Florida borrowers, a few situations consistently make the switch the right call:
- Your home value has grown, pushing your LTV to 90% or below.
- Your credit score has improved since you closed your FHA loan.
- Your FHA loan closed after June 3, 2013 with less than 10% down, meaning MIP will never cancel on its own.
- You want cash-out access on a second home or investment property. FHA cash-out refinancing is limited to primary residences. Conventional cash-out is not.
- Your break-even timeline is under 36 months and you plan to stay in the home.
If none of those apply, waiting may be the smarter move. Building more equity before you refinance can eliminate PMI entirely on the new loan, which produces bigger monthly savings and a shorter break-even.
When Conventional PMI Costs Less Than FHA MIP
A Fountain homeowner purchased in early 2021 with an FHA loan and a 3.5% down payment. Their credit score at closing was 658. By 2026, consistent payments and responsible credit management had brought it up to 724.
They assumed they needed to wait until they reached 20% equity before refinancing made sense. With an LTV still around 86%, they planned to hold off for another two or three years.
After running the numbers with a lender, they learned that conventional PMI at 724 would come in at 0.38% annually, compared to the 0.55% FHA MIP they were paying. Combined with a lower rate on the new loan, total monthly savings came to about $155. Closing costs were estimated at $5,200, putting break-even at 34 months. They refinanced rather than waiting, removing a cost that would otherwise have followed them for the life of the loan.
What the Refinance Process Looks Like
Refinancing from FHA to conventional is a full mortgage application. You go through underwriting again. It’s not dramatically different from what you did when you bought the home, but it does require the same level of documentation.
Step 1: Know your numbers before you apply. Pull your credit report and get a rough estimate of your home’s current value. Calculate your approximate LTV. This gives you a realistic picture of what rate and PMI cost you might qualify for before you sit down with a lender.
Step 2: Apply with a lender. You’ll submit a full application covering credit, income, and debt. Working with a Colorado mortgage broker or a Florida-based team means they can compare programs across multiple lenders to find the best combination of rate, PMI cost, and closing cost structure for your situation.
Step 3: The appraisal. Your lender orders a current appraisal. This is the official number that sets your LTV and determines whether PMI applies. Because it reflects today’s market value rather than your original purchase price, it sometimes comes back better than borrowers expect.
Step 4: Underwriting and closing. Once the appraisal is complete, underwriting reviews the full file. Most conventional refinances close within 30 to 45 days of application. At closing, you pay any out-of-pocket closing costs, or they get rolled into the loan balance if you’ve arranged that in advance.
Have two years of pay stubs, W-2s, tax returns, and bank statements organized before you apply. Clean, complete paperwork keeps the timeline moving and reduces the back-and-forth with underwriting.
Common Mistakes to Avoid
Assuming You Need 20% Equity Before Comparing Costs
We regularly see FHA borrowers delay the switch by one to two years when the monthly savings would have already made refinancing worthwhile. The question isn’t whether you’ve hit 20%. It’s whether conventional PMI at your current credit score costs less than what you’re paying in FHA MIP right now.
Skipping the Home Value Estimate Before Applying
Some borrowers apply without having a realistic sense of what their home is worth today. If the appraisal comes in lower than expected, it shifts the PMI calculation and the break-even timeline in ways that can change the whole decision. A quick market estimate from a local lender before applying saves time and avoids surprises.
Calculating Savings Without Accounting for Closing Costs
Monthly savings look compelling before you factor in what it costs to refinance. We see borrowers focus on the payment difference and then be surprised by how long it takes to recoup the upfront cost. Running the full break-even math first is the only way to know whether the timing actually makes sense.
Questions to Ask Your Lender
- What conventional PMI rate would I qualify for based on my current credit score and LTV?
- How does that PMI rate compare to the FHA MIP I’m currently paying each month?
- What is a realistic estimate for my home’s current value, and does that affect whether PMI will apply?
- What are the total closing costs on a refinance like this, and can any of them be rolled into the new loan balance?
- How long would it take me to break even on this refinance after accounting for closing costs?
- Do I qualify at my current DTI, or is there anything I should address before applying?
Find Out If a Refinance Actually Pencils Out
Our refinance tools let you compare your current rate against today's options, calculate your break-even timeline, and model a cash-out scenario — so you know whether it makes sense before you apply.
Open the Refinance ToolsFrequently Asked Questions
Yes. You can refinance with less than 20% equity, though your new conventional loan will require PMI until you reach that threshold. Even so, conventional PMI at your current credit score may cost less than the FHA MIP you’re already paying. The comparison is worth running before you decide to wait, especially if your credit has improved since you took out the FHA loan.
As of November 2025, Fannie Mae and Freddie Mac no longer require a specific minimum credit score for conventional loan approval. Loan decisions now reflect an overall review of credit risk factors. Most individual lenders still set their own minimum guidelines, typically around 620, but the hard GSE floor is no longer in place. A higher credit score will still get you better rates and lower PMI costs.
Yes. A new appraisal is required for every FHA-to-conventional refinance. The lender needs a current market value to set your loan-to-value ratio and determine whether PMI applies. If your home has gained value since you bought, the appraisal can lower your effective LTV and potentially reduce or eliminate the PMI requirement on the new loan.
It depends on your monthly savings and your closing costs. Divide your total closing costs by your monthly savings to find the break-even point in months. Closing costs typically run 2% to 6% of the loan amount. Most borrowers who make the switch see break-even timelines between 20 and 50 months.
Your FHA MIP stops when your FHA loan is paid off, which happens at closing on the new conventional loan. You will not receive a refund on the upfront MIP you paid when you originally took out the FHA loan. Going forward, your mortgage insurance shifts to conventional PMI if your LTV is above 80%, or disappears entirely if you’ve reached 20% equity at the time of refinance.
