The Quick Read: Plan on roughly 20% equity, which means a new loan at or below about 80% of your home’s appraised value. Equity alone does not remove mortgage insurance from an FHA loan. You get rid of it by paying off the FHA loan with a non-FHA loan, usually a conventional one. Below 20% equity, the new loan can still work, but it will carry private mortgage insurance, which you can cancel later. Eligibility is subject to lender guidelines and full file review.
Why Equity Alone Doesn’t Drop MIP
The mortgage insurance premium (MIP) is part of the FHA loan itself. It is not a charge that goes away as your equity grows. Your equity can double, and the premium stays on the loan.
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 surprises many owners. They hear that mortgage insurance falls off at 20% equity, and they assume it applies here. It applies to conventional loans. FHA works differently.
Here is how the premium works on the FHA programs Lendmire places files with:
- Upfront premium: 1.75% of the base loan, usually financed into the balance.
- Annual premium: between 0.15% and 0.75% of the balance, depending on the term, the loan amount and the LTV.
- How long it lasts: on a thirty-year loan above 90% LTV, the annual premium lasts for the full term. At 90% LTV or below, it ends after eleven years.
LTV means loan-to-value: your loan balance divided by the home's value. A borrower who put down the 3.5% minimum on a purchase started near 96.5% LTV. That borrower is on the full-term schedule. You can check your own loan's schedule on your closing paperwork. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
If you want the program basics before the refinance math, start with Lendmire's overview of FHA loan programs.
How the Equity Test Works on a Refinance
The equity requirement shows up at the new loan, not the old one. You are asking a conventional lender to make a loan of about 80% of value or less. That is roughly the same as saying you have 20% equity after the new loan's costs.
The math has three steps:
1. Find the value. The lender orders an appraisal. That number counts. Your estimate and an online valuation do not.
2. Find the payoff. Use the full payoff of the FHA loan, including interest owed through the payoff date.
3. Add financed costs. If you roll closing costs into the new loan, they count toward the new balance.
The formula for the new LTV is: (payoff + financed costs) ÷ appraised value.
Say your balance sits at 78% of what you think the home is worth. That looks like 22% equity. Now the appraisal comes in 3% under your estimate. Your payoff is now about 80.4% of the appraised value. Add financed closing costs and you are further over. You just crossed the line, and mortgage insurance returns on the new loan.
Appraisals miss in both directions. The point is to treat 20% as a target with a cushion, not a line you can sit exactly on.
Equity Bands: Where You Stand
Use this table as a self-check. It assumes a one-unit home you live in. Every outcome is subject to credit, income and lender guidelines.
| Equity after costs | New loan LTV | Typical result |
|---|---|---|
| About 20% or more | About 80% or less | Conventional loan, no mortgage insurance |
| About 10% to 20% | About 80% to 90% | Conventional loan with PMI, cancelable later |
| Under about 10% | Above about 90% | Conventional is harder; staying FHA may fit better |
The middle band is where most of the real decisions happen. Swapping MIP for PMI can still make sense, and the next section explains why.
MIP vs. PMI: What You Gain by Leaving
MIP and private mortgage insurance (PMI) both protect the lender. They end very differently.
On a conventional loan, you can ask the servicer to cancel PMI once your balance is scheduled to reach 80% of the home's original value. The servicer must end it automatically at 78% if you are current. The CFPB's explanation of PMI removal lists the conditions. Those include a written request, a good payment history, no junior liens, and a value that has not fallen below the original. These rights cover single-family principal residences.
FHA MIP has no such request right based on your equity. HUD's rules tie cancellation to the loan's case-number date and the original LTV. In HUD's Mortgagee Letter 2023-05, the duration table says MIP lasts eleven years at 90% LTV or below on terms over fifteen years. Above 90%, it lasts for the term. That letter also lowered annual MIP rates for loans endorsed from March 2023 forward. It cut the annual charge but did not change the duration rules. Exact terms depend on the lender's guidelines, property type, leverage, and a full review of the borrower's file.
So a refinance into a conventional loan with 10% equity swaps one insurance for another. The new insurance comes with an exit.
Older FHA Loans Follow a Different Rule
If your FHA loan was assigned a case number before June 3, 2013, and closed on or after January 1, 2001, you may be on an older schedule. For those loans, MIP can cancel automatically at 78% LTV. Several conditions apply by term and original LTV.
The key detail is the value used. HUD's handbook language, reproduced in Mortgagee Letter 2025-12, says HUD does not use a new appraised value to decide whether you reached the cancellation point. It follows the original amortization schedule. Appreciation does not speed it up.
If your MIP is about to end by itself, a refinance may add little. Check your loan's schedule before you pay closing costs.
Streamline vs. Conventional: The Trap
The FHA Streamline is the refinance most FHA owners hear about first. It carries a clear benefit: no appraisal, a limited credit review, and a net tangible benefit test, meaning the refinance must help you in a measurable way, such as a lower combined payment.
It also keeps MIP. A Streamline is a new FHA loan. The premium continues.
Sellers of "no equity needed" refinances often skip that point. The Streamline fits when your equity is thin, your credit has slipped, or you want the lightest paperwork. It does not fit when your goal is to drop mortgage insurance. HUD's older streamline guidance in Handbook 4155.1 notes that an appraisal is not required. The current standard sits in Handbook 4000.1.
The other FHA refinances also keep MIP:
- FHA rate-and-term with an appraisal: reaches 97.75% on a principal residence you occupied for the previous twelve months.
- FHA cash-out: reaches 80% LTV on a home you owned and occupied for twelve months before the case number. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
If you have 20% equity and want MIP gone, an FHA cash-out is the wrong tool. A conventional refinance is the comparison to run.
Beyond Equity: What Else the Lender Checks
Equity opens the door. It does not carry you through it. A conventional refinance requires full underwriting. The Streamline's relaxed documentation does not carry over.
Expect the lender to review:
- Credit: conventional loans generally ask for stronger scores than FHA does. Some lenders add their own minimums above the program's.
- Income and debts: your debt-to-income ratio (DTI) compares monthly debts to monthly income. Limits vary by lender and file.
- Assets: funds for closing costs and any reserves.
- Liens: a second mortgage or HELOC can count toward the combined LTV.
- Occupancy and unit count: one-unit principal residences get the highest leverage. Two- to four-unit homes have lower caps.
FHA is more forgiving on credit and DTI. On the FHA side, documented compensating factors can stretch ratios from the 31/43 base up to 40/50 at the top tier. That flexibility is why plenty of borrowers with big equity and so-so credit are better off staying put.
Fannie Mae's Eligibility Matrix shows the pattern. Leverage caps drop as you move from no-cash-out refinances to cash-out refinances, and they drop again for multi-unit homes. An eligible loan is not always a PMI-free loan. PMI generally applies above 80% LTV.
Closing Costs and the Appraisal Cushion
Closing costs eat equity if you roll them in. A refinance that looks like a clean 80% can land at 82% once costs are financed. You have three ways to handle that:
- Pay costs out of pocket. Your new LTV stays where the appraisal puts it.
- Bring a lump sum to the table. A principal payment at closing can bring the loan down to the threshold.
- Accept PMI on the new loan. This is workable if the numbers still pay back.
A low appraisal gives you a few more options. You can ask the lender about a reconsideration of value, which means giving better comparable sales. You can wait and reappraise later. Or you can pay down the difference. The decision depends on how close you are.
Experience from placing FHA files shows a pattern. Borrowers who sit one or two percent over the threshold often fix it with a modest principal payment. Borrowers who sit ten percent over rarely fix it that way, and they usually do better planning for PMI or waiting.
Is It Worth Doing? A Break-Even Walkthrough
Closing costs are the price of admission. The savings come from a smaller monthly mortgage-insurance line, so the real question is how long you will stay in the home.
Run it in four steps:
1. List the one-time costs of the new loan: appraisal, lender and title charges, and any prepaid items.
2. Find the monthly difference between your current total payment and the new total payment.
3. Divide the costs by the monthly savings. That gives you the months until you break even.
4. Compare that number with how long you expect to keep the home.
Keep a few traps in mind. A new loan with a longer remaining term can lower the payment while raising total interest paid. A refinance that restarts the clock may not help if you were near the end of your MIP schedule. And a slightly lower payment is not savings if your costs take years to earn back.
Equity is also useful beyond MIP. If you want cash from the home, FHA cash-out has its own limits. Lendmire's article Why Homeowners Are Tapping Record Equity With an FHA Cash-Out Refinance walks through that path.
Ways to Reach the Threshold Sooner
If you are close but not there, you have real options:
- Make a lump-sum principal payment. Extra payments do not cancel MIP, but they do help you reach the equity a conventional lender wants.
- Wait for amortization. Each payment moves you toward the target. The gap shrinks even if prices do not move.
- Add value with a project. Improvements can lift the appraisal. They do not always add as much as they cost.
- Compare against PMI. Sometimes the better move is to refinance at 10% equity and cancel PMI later.
The best choice depends on how far you are, what your credit looks like, and how long you plan to stay.
Common Myths
"I have 20% equity, so my servicer will drop MIP." It will not, because FHA cancellation follows the loan's schedule rules, not your current value.
"A Streamline removes MIP." It does not. A Streamline is a new FHA loan.
"Conventional always means no mortgage insurance." Above about 80% LTV, PMI generally applies.
"The 2023 premium cut ended MIP." It lowered the annual charge. The duration rules are unchanged.
"FHA cash-out still goes to 85%." That limit was cut to 80%, as recorded in HUD's Handbook 4000.1 transmittal.
Key Terms Defined
Equity: the appraised value of your home minus what you owe on it.
LTV (loan-to-value): your loan balance divided by the home's appraised value, shown as a percentage.
MIP (mortgage insurance premium): the insurance charge that comes with an FHA loan, paid upfront and annually.
PMI (private mortgage insurance): the insurance charge on a conventional loan with less than about 20% down or equity. You can cancel it as your balance falls. Final terms depend on lender guidelines, property type, leverage, and the borrower's complete credit picture.
Net tangible benefit: the test an FHA Streamline must pass to show the refinance helps you in a measurable way.
Appraisal: a professional estimate of your home's value ordered by the lender.
Frequently Asked Questions
How much equity do I need to refinance an FHA loan and skip mortgage insurance?
Roughly 20%. That puts the new conventional loan at about 80% of the appraised value or less. Financed closing costs count toward the balance, so you need a cushion. Below that line, you can still refinance, but PMI applies.
Can I just ask my servicer to cancel MIP once I have 20% equity?
Usually not. FHA cancellation depends on the case-number date and the original LTV, not on your current equity. Some older loans cancel at 78% of the original value, and HUD does not use a new appraisal for that test. For most newer loans, a refinance into a non-FHA loan is the route.
Does an FHA Streamline remove MIP?
No. A Streamline is a new FHA loan, so the premium continues. It does skip the appraisal and uses a limited credit review, which helps when equity or credit is thin. It does not help if your goal is ending mortgage insurance.
What if my appraisal comes in lower than expected?
You have three main paths. You can ask for a reconsideration of value with stronger comparable sales. You can pay down the balance to reach the target. Or you can accept PMI on the new loan. A small miss is often fixable. A large miss usually means waiting.
Is refinancing to conventional worth it if I have under 20% equity?
It can be, if you break even before you move. PMI can be cancelled once your balance reaches 80% of the original value, subject to conditions. FHA MIP does not offer that path. Credit and DTI matter too, since a borrower with weaker credit may be better off staying in FHA.
The Next Step
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. Reach the team at 828-256-2183 or request a quote. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. CFPB: When can I remove PMI?
2. HUD Mortgagee Letter 2023-05
3. HUD Mortgagee Letter 2025-12 (Handbook 4000.1 MIP cancellation)
4. HUD Handbook 4155.1, Chapter 6, Section C
5. Fannie Mae Eligibility Matrix
6. HUD Handbook 4000.1 transmittal (December 2019)
This article is part of Lendmire’s FHA loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Conventional Loan vs FHA for a Move-Up Buyer With Sale Equity · How Much Annual MIP Adds to an FHA Loan Payment for a Retiree · How Much Mortgage Insurance a VA Loan Saves Over FHA or Conventional
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.