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Refinance Out of FHA Loan to Conventional

Refinance out of FHA Loan

Learn about the benefits you may experience by refinancing
your FHA loan to a conventional mortgage, such as removing
mortgage insurance premiums (MIP) and lowering your rate.

FHA to Conventional Loans – Why Make the Switch?

FHA mortgages are unarguably a great choice to finance a home due to their low down payment option, and easy qualification guidelines.  However,  they are far less helpful once you’ve established yourself and have built up some equity in your home. Once you are sitting on some home equity, and your credit has improved, it’s time to think about refinancing into a conventional mortgage.  Refinancing out of an FHA loan and into a conventional loan can offer serious advantages.

The two most notable benefits that making the switch can offer is removing MIP (mortgage insurance premiums) and also the likelihood of being awarded a much lower rate and monthly payment.

It is worth mentioning that even if you do not qualify for a conventional loan, you may still be eligible to refinance into an improved loan compared to what you are currently in. Additionally, if you have sufficient equity in your home you may still be able to get rid of your mortgage insurance premiums by refinancing from one FHA loan to another FHA loan.

When you refinance from FHA to conventional you may be able to:

  • Eliminate mortgage insurance
    One of the key benefits of refinancing to switch from a FHA loan to a conventional mortgage is to eliminate your monthly mortgage insurance.  As long as your new loan is for 80% or less than the appraised value of your home, you will not have to pay PMI.  Removing mortgage insurance will reduce your monthly payment, and save you a significant sum of money over time.
  • Lower your interest rate
    When you refinance your loan you most likely will receive a much lower rate.  Conventional interest rates are usually much lower than FHA rates.  Also, if your current loan was started more than a couple of years ago you probably have a high rate compared to current rates.
  • Lower monthly payment
    The combination of removing expensive FHA mortgage insurance premiums (MIP) and getting a new lower interest rate will save you a lot of money.  Enjoy your new lower monthly payment and save or spend your money on more important things.
  • Change loan terms
    When you switch to a conventional loan you can choose from many more types of loan programs.  This means that you may have more options for different types of loan terms, such as various fixed rate mortgage terms and adjustable rate mortgages.
  • Skip two payments 
    Usually when you refinance you are able to skip two mortgage payments, so be sure to add this to the total new savings that you experience when you refinance into your new home loan.

Refinancing from FHA to Conventional

If you have built up equity over the years or established a better credit score, refinancing out of an FHA into a conventional can save you thousands in the long run. By far, the greatest benefit is removing the MIP entirely. While great for helping you purchase a home you could otherwise not afford, it is a money sink that gives nothing in return. In addition, switching to a conventional with better equity and credit means you’ll have many more options with both lower rates and lower monthly payments.

Even if it ends up that you don’t qualify for a conventional mortgage, there is still a high possibility you can refinance to improve the loan you already have. On top of this, the equity you’ve paid can mean freedom to drop the MIP by switching from one FHA loan to another with a better deal.

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