The Quick Read: It depends on your equity, your credit and your debt load, and the equity decides whether mortgage insurance actually goes away. A conventional refinance pays off the FHA loan with a new loan that has its own credit, income and appraisal tests. Enough equity can end the insurance cost. Less equity usually means a conventional loan with private mortgage insurance that you can cancel later.
What Does This Refinance Actually Do?
It replaces your FHA loan with a conventional one. The new loan pays off the old balance, and the old loan, with its FHA insurance, disappears.
Refinance savings and break-even estimate
The starting figures are an example value with a balance in proportion and a placeholder for costs. Replace them with yours, and enter the current rate from your statement.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $245,000 current balance, a current rate you enter and a remaining term seeded at twenty-five years, closing costs seeded at $5,000 as an editable placeholder (not a fee quote) and rolled into the new loan, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The new rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a refinance quote; a refinance is priced by the lender at lock, and the current rate, the remaining term and the closing costs are figures you enter. The current payment is estimated from the balance, the current rate and the remaining term; the break-even divides the closing costs by the monthly saving and ignores the interest effect of a longer term. On the VA IRRRL the funding fee is added to the loan unless the veteran is exempt. Taxes and insurance are editable estimates. Licensed in sixteen states for consumer mortgages; Lendmire is a broker, never the lender.
That is the appeal. FHA charges an upfront premium and an annual premium. Across the FHA loan programs Lendmire places, the upfront premium is 1.75% of the base loan, usually financed. The annual premium runs between 0.15% and 0.75% of the balance, depending on term, loan amount and LTV. On a thirty-year loan above 90% LTV, that annual premium lasts for the term. At or below 90% LTV, it ends after eleven years.
So the length of your insurance was largely fixed on day one by your original down payment. Extra payments don't shorten it, and neither does a rise in home value. For many borrowers, refinancing out of FHA is the only exit.
Lendmire's FHA loan programs page covers how the FHA side works. This article covers what it takes to leave.
Key Terms Defined
LTV (loan-to-value): Your new loan balance divided by the appraised value of the home.
Limited cash-out refinance: A refinance that pays off your current loan and costs, with only a small amount of cash back allowed.
Cash-out refinance: A refinance that lets you take a larger amount of equity as cash, at a lower maximum LTV.
PMI (private mortgage insurance): Insurance on a conventional loan with less than 20% equity. Unlike FHA premiums, you can cancel it.
DTI (debt-to-income ratio): Your monthly debts divided by your gross monthly income.
Seasoning: How long you have owned the home or held the loan before a refinance is allowed.
How Much Equity Do You Need?
Less than most people think. Equity answers three separate questions, and mixing them up causes most of the confusion.
Question one: can I qualify at all? Fannie Mae's published matrix allows high LTVs on a limited cash-out refinance of a one-unit primary residence. That means you do not need 20% equity just to be eligible. Matrices change, so treat any published maximum as a guideline, not a promise. The Fannie Mae Selling Guide adds a catch for the very top tier. The highest LTV range requires that Fannie Mae already own or securitize your existing loan. An FHA loan is not that. Borrowers with thin equity are therefore generally pushed to the lower tiers.
Question two: can I avoid mortgage insurance? That depends on the new LTV. The usual line is 80%. At or below it, a conventional loan generally carries no PMI. Above it, PMI applies.
Question three: can I take cash out? Cash-out carries a lower maximum LTV, more conditions, and a seasoning test. The loan you're paying off generally needs to be at least a year old.
Three different thresholds, three different answers. Know which one you are chasing before you apply.
How to Calculate Your Equity Before You Apply
Start with a realistic value, not a hopeful one. Then work through four steps.
1. Estimate the home's value from recent nearby sales. Treat it as a range.
2. Add up everything secured by the home: your FHA balance, any second mortgage, any HELOC.
3. Add the closing costs you plan to roll into the new loan.
4. Divide that total by your value estimate. The result is your likely new LTV.
Here is a scenario with no dollar figures. Say the new loan would equal 78% of your value. You are under the 80% line, so PMI likely drops out. Now suppose the appraisal comes in 5% lower than you expected. The same loan is suddenly well above 80%, and PMI is back. Run your estimate at your expected value and again at a modestly lower one. If the lower case still works, you have a cushion. If it doesn't, you are borderline.
Rolling closing costs into the balance pushes your LTV up. Paying them in cash keeps it down. That choice alone can decide which side of the 80% line you land on.
Second liens matter too. A HELOC or second mortgage counts against your equity. It usually has to be paid off in the refinance or handled under the new lender's rules, and either way it adds to the balance you're measuring.
What Do Lenders Check Besides Equity?
Equity gets you in the room. Underwriting decides the rest.
Debt-to-income. For files run through Fannie Mae's automated system, the published maximum DTI is 50%. Manually underwritten files get a lower ceiling. Fannie Mae also notes the limit may be lower for cash-out refinances. If a new debt turns up before closing, the file is re-run, and a loan that pushes DTI past the limit becomes ineligible. Fifty percent is a ceiling, not a promise. The automated system weighs the whole file and can decline well below it.
Credit. Conventional loans generally ask for more than FHA does. FHA can reach borrowers with lower scores, and a conventional lender prices and approves by credit tier. Some lenders set a higher floor than others. Your score also changes the cost of PMI if you need it.
Income and employment. Expect to document steady income, as you did for the FHA loan.
Payment history. A clean record on your current mortgage helps, especially on a cash-out.
Occupancy and property type. This article is about your primary home. Second homes and rentals follow different rules, and a 2-4 unit primary residence has lower maximum LTVs than a one-unit home.
Ownership. If the home sits in an LLC or trust, Fannie Mae's limited cash-out rules call for moving title into your name first.
Step by Step: How the Process Runs
1. Define the goal. Dropping insurance, shortening the term, taking cash out, or some mix. The goal picks the loan type.
2. Check your numbers. Equity, DTI, credit, and any second liens.
3. Compare offers. A Loan Estimate itemizes costs and cash to close, so you can compare apples to apples. See the CFPB's Loan Estimate explainer.
4. Apply and appraise. The appraisal sets your value, and your value sets your LTV. This is the step that most often changes the outcome.
5. Underwrite. The lender verifies income, debts, credit and the property.
6. Pay off the FHA loan. The new lender sends the payoff, including interest accrued to that date. Your old servicer refunds your escrow balance separately.
7. Review the Closing Disclosure. Compare it with your Loan Estimate. Charges for services you could shop for may rise, but generally by no more than 10% over the estimate.
Loan Estimates and Closing Disclosures follow set timing rules for consumer mortgages, and your lender will explain the schedule on your file.
Will It Actually Remove Mortgage Insurance?
Only if the new LTV is at or below the PMI threshold. Otherwise you swap one insurance for another.
| Your new LTV | Likely outcome | What you can do later |
|---|---|---|
| At or below 80% | Generally no PMI | Nothing to cancel |
| Slightly above 80% | PMI applies | Request cancellation at 80% |
| Well above 80% | PMI applies | Cancel later or pay down |
| Cash-out requested | Lower maximum LTV | Fewer borrowers qualify |
The difference is cancellation. Under the CFPB's PMI rules, borrower-paid PMI can be cancelled on request at 80% of the original value, with conditions such as a good payment history and no junior liens. It ends automatically at 78% if you are current. FHA premiums don't follow those rules. They follow HUD's.
After a refinance, the reference value generally comes from the new appraisal. That resets the clock in your favor if your home has appreciated. Confirm the exact treatment with your loan officer before you count on it.
Where the General Rule Breaks
Several situations flip the usual advice.
Older FHA loans. If your FHA case number was assigned before June 3, 2013, you may not need to refinance at all. HUD's handbook update says older loans cancel annual premium based on the original amortization schedule, and HUD does not consider new appraised values. Check your case-number date first. A loan that is about to drop its insurance on its own may not be worth the closing costs.
Loans from the last few years. For newer loans, the original LTV drives the length of the premium. Home appreciation doesn't change it. That's the group that benefits most from leaving.
Early in an FHA loan. A refund credit for the upfront premium exists only when you refinance from FHA into another FHA loan, within a limited window. Moving to conventional forfeits it. If you are early in the loan, an FHA Streamline may beat leaving. It involves no appraisal, a limited credit review and a net tangible benefit, though the premium continues.
The cash-out borrower. The FHA cash-out reaches 80% LTV on a home you've owned and occupied for 12 months. Fannie Mae's conventional cash-out sits at the same 80% for a one-unit home. If you don't qualify for PMI-free pricing, or need a different term, the two paths compare differently. Exact terms depend on the lender's guidelines, property type, leverage, and a full review of the borrower's file.
FHA rate-and-term. An FHA rate-and-term with an appraisal reaches 97.75% on a principal residence you've occupied for the previous twelve months. For a borrower who needs high leverage and doesn't mind keeping FHA, that remains an option.
Borderline equity. You might sit just above 80%. Then the choice is to wait, pay down the balance to cross the line, or refinance now and cancel PMI later. There's no single right answer. A borrower planning to stay a decade values removing insurance more than one planning to move in two years.
Credit events. HUD's waiting periods, such as two years from a chapter 7 discharge and three years from a foreclosure, are HUD rules. Conventional waiting periods differ, so a past credit event can make FHA the easier door even when equity is strong.
Lendmire's piece Can a Texas Homestead Move From FHA to Conventional Cash-Out Refinance? covers one state-specific wrinkle for borrowers taking cash.
Is It Worth It? The Break-Even Logic
Divide your total closing costs by your monthly savings. The answer is the number of months until the refinance pays for itself. If you expect to move or refinance again before that point, it's a loss.
Savings come from a few places. You may drop an insurance premium. You may shorten the term. You may change the structure of the loan. Each one has a cost. Closing costs have been rising: a CFPB request for information found median total loan costs on purchase loans climbed more than 36% between 2021 and 2023, per the CFPB's closing-cost notice. That figure covers purchases rather than refinances, but it is a reminder not to assume costs are small.
Compare three paths on the same home:
- Stay in FHA and keep paying its insurance.
- Refinance to conventional with PMI that you can cancel later.
- Refinance to conventional with no PMI because of your equity.
Be wary of anything marketed as a "no-closing-cost" refinance. Those costs are built into the loan balance or the pricing; they haven't vanished. The right comparison is total cost over the years you will really keep the loan.
The Value of Getting Ready First
A few habits improve outcomes.
- Pay down small debts before applying. Even a modest shift can move DTI.
- Avoid new credit during the process. A new car loan can trigger a re-run.
- Gather pay records, traditional personal-income documentation and bank statements early.
- Ask your servicer for a payoff figure and confirm the case-number date.
- Decide in advance whether you will pay closing costs or roll them in.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Frequently Asked Questions
Do I need 20% equity to refinance from FHA to conventional?
No. Twenty percent matters for avoiding PMI and for a cash-out, not for eligibility. Fannie Mae's published matrix allows a limited cash-out refinance at higher LTVs on a one-unit primary residence. Those maximums change, and the highest tier is aimed at loans Fannie Mae already owns, which an FHA loan is not. Expect lower tiers if your equity is thin.
Will my FHA mortgage insurance drop off once I reach 20% equity?
Usually not. On a thirty-year loan above 90% LTV, the annual premium lasts for the term, and at or below 90% it ends after eleven years. Appreciation doesn't change that. Older loans with case numbers before June 3, 2013 follow different HUD rules, so check your date.
Do I get my FHA upfront premium back if I refinance to conventional?
No. The refund credit applies only to an FHA-to-FHA refinance within a limited window. Leaving FHA forfeits it, which is a real cost for a borrower early in the loan.
What if the appraisal comes in lower than I expected?
Your LTV rises, and that can bring PMI back or lower the available loan amount. Run your numbers at a modestly lower value before applying. If the cushion disappears, you may be better off waiting, paying down the balance, or considering an FHA Streamline instead.
Can I take cash out when I move to a conventional loan?
Often, with limits. A cash-out has a lower maximum LTV than a limited cash-out, and the loan you're paying off generally must be at least a year old. Any amount over the limited cash-out allowance reclassifies the loan as a cash-out. Lenders may also apply a lower DTI ceiling. Everything depends on the lender's guidelines and a full file review.
Choosing Your Next Move
Equity, credit and DTI shape this decision, and no one answer fits every file. If you are weighing a refinance and want the break-even run on your own numbers, Lendmire can help you compare the programs on the same home. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender's guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide B2-1.3-02 Limited Cash-Out Refinance
2. Fannie Mae Selling Guide B3-6-02 Debt-to-Income Ratios
3. CFPB Loan Estimate explainer
4. CFPB: When can I remove PMI?
5. HUD Housing Notice / Handbook 4000.1 update (MIP, pre-June 2013 loans)
This article is part of Lendmire’s FHA loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Why Homeowners Are Tapping Record Equity With an FHA Cash-Out Refinance? · Conventional Cash-Out vs FHA Cash-Out for Debt Consolidation · FHA Cash-Out Requirements for a Condo Building in Litigation
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.