Yes, refinancing from an FHA loan to a conventional loan is possible. If you currently have a home loan insured by the Federal Housing Administration, your credit rating will most likely be too low to qualify for a conventional mortgage. To refinance an FHA loan, you must qualify for the FHA loan or another type of loan. We'll go over some of what's needed to qualify for individual types of home loans a little later, but for now, let's talk in general terms.
When you want to refinance your FHA loan, you can choose between two types of loans. You can refinance your current FHA loan with a new FHA loan. However, you may also be able to refinance your current FHA loan with a new conventional loan. Refinancing an FHA loan for a conventional mortgage may allow you to get a lower interest rate.
If your original loan had an adjustable rate, you have the option of refinancing a fixed-rate loan. You also have the option of refinancing from a fixed-rate loan to an adjustable-rate mortgage, if that's more attractive to you. If your credit rating has improved since you applied for your FHA loan, you may be able to get more favorable terms with a new conventional mortgage. Due to high demand this year, most private lenders will need to get excellent credit scores above 700 to offer you the best refinance rates.
When you reach 20% of your home equity, through a combination of monthly payments and home price appreciation, you can ask your lender to cancel your private mortgage insurance or refinance it into a new loan without a PMI. You may be able to shorten the term of your loan, take advantage of lower interest rates, and enjoy lower monthly payments by refinancing a conventional loan. The reality is that both first-time and repeat buyers can get an FHA loan or a conventional loan. You can refinance your FHA mortgage into a conventional loan as soon as you meet the qualification requirements for your new loan.
While interest rates on conventional loans tend to be slightly higher than FHA rates, if you refinance when rates are lower than when you first borrowed, you're likely to continue to get a lower interest rate and save money. The only way to escape MIPs is to accumulate up to 20% of the home's net worth so that it can be refinanced into a conventional mortgage without a PMI. Compared to an FHA loan, conventional loans may be cheaper in the long term, but it may be more difficult to qualify for them. Credible makes it easy to compare current refinancing rates of conventional loans from multiple lenders.
Most FHA homeowners will need to pay a new mortgage insurance premium upfront equal to 1.75% of the loan amount when refinancing with an FHA loan. Conventional loans are the most popular types of mortgage loans and represent any mortgage that is not backed by a government agency such as the FHA. To refinance an FHA loan to convert it to a conventional loan, you will follow the same general steps that you would follow in any mortgage refinance. With an FHA loan, the MIP is for the life of the loan, as long as you deposit less than 10% at the beginning.
Buyers applying for an FHA loan may have the option of putting in as little as 3.5% when buying their home. Current FHA homeowners must pay monthly mortgage insurance (MIP) premiums for at least 11 years, regardless of the value of their home equity. .