How to Get Out of FHA Mortgage Insurance With a Conventional Loan

The Quick Read: For most borrowers who put down less than 10%, the practical exit is a conventional refinance that pays off the FHA loan. The insurance ends with the payoff, not on request and not because the home gained value. The new loan avoids mortgage insurance only if its loan-to-value ratio lands at or below 80%. Above that, private mortgage insurance (PMI) applies, though it can be cancelled later in a way FHA insurance often cannot.

Why FHA Insurance Is So Hard to Shake

The structure explains why borrowers feel stuck. Across the wholesale programs Lendmire places FHA files with, the borrower pays an upfront premium of 1.75% of the base loan, usually financed into the balance. The borrower then pays an annual premium of between 0.15% and 0.75% of the balance, depending on term, loan amount and loan-to-value.

Duration is where it bites. On a thirty-year loan above 90% LTV at origination, the annual premium lasts for the full term. At 90% or below, it ends after eleven years. Because the schedule keys off the original loan, a borrower who started with the minimum investment of 3.5% (a 96.5% loan) is on the long clock. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

Extra payments and rising home values don’t change that clock. Equity does matter for the new loan you would take out, but it does nothing to the old one. That’s why FHA loan programs work well as an entry ramp, and why many borrowers plan the exit from day one.

Key Terms Defined

Upfront premium (UFMIP): a one-time insurance charge on an FHA loan, set as a percentage of the base loan amount and usually financed.

Annual premium (MIP): the ongoing FHA insurance charge, based on the loan balance and collected monthly with the payment.

Private mortgage insurance (PMI): insurance on a conventional loan with less than 20% equity, which can be cancelled under set conditions.

Loan-to-value (LTV): the loan balance divided by the home’s value. A balance of 80% of value is an 80% LTV. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

Limited cash-out refinance: a refinance that pays off the old loan and closing costs without giving you meaningful cash back. Often called rate-and-term.

Streamline refinance: an FHA-to-FHA refinance with limited paperwork. It keeps FHA insurance in place.

Do You Even Need to Refinance?

Not always. Check your loan’s vintage and original down payment first.

HUD’s Mortgagee Letter 2023-05 lays out the schedule: a 1.75% upfront premium on all mortgages, and annual premium duration split at the 90% LTV line. HUD has since folded that letter into its Single Family Housing Policy Handbook (4000.1), so the handbook is the current policy reference, per HUD’s list of superseded documents. Your servicer can tell you which schedule your loan follows. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.

Loans written before the mid-decade rule change may follow different cancellation terms, so it is worth a phone call to your servicer. For those loans, HUD’s handbook describes automatic cancellation at 78% of the original value after five years of payments on terms over fifteen years. If your loan qualifies for cancellation under those terms, a refinance is unnecessary.

How Do You Get Out of FHA Mortgage Insurance Step by Step?

There is no special FHA-to-conventional product. It is a standard conventional refinance, and the new loan pays off the FHA loan. Here is the sequence in practice.

1. Pull your numbers. Find your payoff balance, your original loan terms, and your best estimate of the home’s value today.

2. Estimate your LTV. Divide the payoff by the value. At or under 80%, the new loan should not need mortgage insurance. Between 80% and the lender’s maximum, it likely will.

3. Pick the refinance type. For an owner-occupied home, this is normally a limited cash-out (rate-and-term) refinance. Taking real cash out tightens the leverage limit and muddies the equity math.

4. Requalify. Expect income, asset, credit and payoff documentation, as in any full-underwriting refinance. Credit and debt load matter more here than they did when the FHA loan was approved.

5. Establish value. Depending on the lender and the automated findings, value can come from an appraisal or another acceptable method. A new appraisal does not cancel the FHA premium. It only sets the new loan’s LTV.

6. Review the Loan Estimate. Consumer refinances come with a Loan Estimate and a Closing Disclosure. Compare costs line by line before you commit.

7. Close and pay off. The FHA payoff ends both the loan and the annual premium. Your final FHA payment and your escrow balance are settled at that point.

What Equity Do You Need?

The line is 80%. Fannie Mae’s Selling Guide says a conventional first mortgage needs mortgage insurance when its LTV is greater than 80%. At or below, no insurance applies.

The guide also lets lenders value a refinance through an appraisal, an automated valuation, or another acceptable method. That is why the same home can produce different value opinions on different files. A borrower sitting a point or two above 80% should ask the loan officer whether the file’s valuation method leaves room, and what a modest additional principal payment before closing would do.

Fannie Mae’s published limits allow a limited cash-out refinance on a one-unit primary residence at leverage well above 80%, so you are not required to hit 80% to refinance. You are required to hit it to skip the insurance.

Three Things That Decide the Outcome

Equity at the new loan. This is the headline number, but it is the easiest to move. Home improvements, a few more months of payments, or a lower balance from a lump sum can all shift it.

Credit and debt load. FHA is forgiving. The programs Lendmire works with start at a 580 decision score, with base ratios of 31/43 and documented compensating factors stretching toward 40/50. Conventional underwriting is typically less flexible on both. Some lenders set a higher score floor, and a borrower who qualified for FHA at the edge may land on pricier PMI or fall short. Check your credit file before you apply.

How long you will stay. Closing costs return with a new loan, so a refinance pays for itself only if the monthly savings add up over time. Savings come from dropping the annual premium and, where it applies, from a different term. Stay long enough to pass the break-even and the math works. Move in a couple of years and it may not.

Running the Break-Even

Picture a borrower who bought at 96.5% financing, has paid down the balance, and has seen the home rise in value. Today the payoff sits at 78% of value. The new conventional loan carries no mortgage insurance. The monthly drop comes from two places: the annual premium disappears, and the loan balance may no longer include the financed upfront premium as it once did.

Divide your total closing costs by your monthly savings and you get the break-even in months. If that number is shorter than the time you plan to hold the home, the refinance favors you. If it is longer, wait.

Now flip it. Same borrower, but the payoff sits at 88% of value. The new loan needs PMI. The monthly savings shrink, since the PMI replaces much of the FHA premium. This is a closer call, and the PMI quote from the lender decides it. The difference is that the PMI on a conventional loan can later be cancelled, while FHA’s may last the full term.

One other cost: leaving FHA gives up any unearned refund of the upfront premium. That refund credit only works when you refinance FHA to FHA, within a window set by HUD. Check Handbook 4000.1 for the schedule.

Which Refinance Can Actually End the Premium?

The FHA Streamline refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit requirement. It is a good tool for what it does. It is not an exit. For a side-by-side look at the cash-out versions, see Lendmire’s piece Conventional Cash-Out vs FHA Cash-Out for Dropping FHA Mortgage Insurance.

Not Enough Equity Yet?

Waiting is not the only choice. You have other options.

• Refinance anyway with PMI. If the PMI quote plus closing costs still leaves meaningful monthly savings and you plan to stay, it can work. The tradeoff is a new set of closing costs and a reset loan term.
• Wait and build equity. Principal payments, a modest value gain, or documented improvements can push LTV under 80%. This is the cleanest path for borrowers just above the line.
• Make a targeted principal payment. A lump sum before applying can close a small gap. Weigh it against keeping cash for emergencies.
• Do nothing. For a loan that ends its premium after eleven years, or one that is already near the end of that window, staying put can be the right answer.

Pulling cash out at the same time changes the picture.

How Does PMI Come Off Later?

If PMI applies to your new loan, it is not permanent. The Consumer Financial Protection Bureau explains that under the Homeowners Protection Act, a borrower can ask the servicer to cancel PMI when the balance is scheduled to fall to 80% of the home’s original value. The request must be in writing. You need a good payment history, no junior liens, and evidence that the value has not declined. The law also provides for automatic termination at 78%.

Two cautions. The CFPB’s examination procedures note that the 80% and 78% rules do not apply to “high risk” loans, which are subject to termination at the midpoint of the term. Also, lender-paid insurance is priced into the loan and generally can’t be cancelled by the borrower. Ask which type your quote uses.

Edge Cases Worth Knowing

• Second homes and 2-4 unit homes. Conventional limits are tighter than for a one-unit primary residence. Occupancy decides leverage.
• Buying out a co-owner. Fannie Mae treats a buyout as a limited cash-out refinance when the property was jointly owned for at least 12 months.
• Value declines. A value below the original can block PMI cancellation later, and it can push a refinance above 80%.
• Credit events. HUD’s waiting periods (two years from a chapter 7 discharge, three years from a foreclosure) are HUD rules. Conventional guidelines differ and are often stricter.
• Manufactured homes and high-balance loans. Each has its own limits. County loan limits apply to FHA, and they change every year.

Common Mistakes and Misconceptions

“FHA insurance drops off at 20% equity.” That is the conventional PMI rule. FHA duration follows the original loan.

“A new appraisal removes it.” An appraisal helps only with a new loan’s LTV.

“The Streamline gets me out.” It is FHA to FHA. The premium continues.

“Refinancing to conventional always kills mortgage insurance.” Only at 80% LTV or below. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.

“The 2023 premium cut shortened the duration.” It lowered the annual rate. The 1.75% upfront premium stayed.

Ignoring the term reset. A new thirty-year loan restarts the clock. Ask about a shorter term if you are well into repayment.

Comparing only the premium. Look at the full monthly cost, the closing costs, and the time you will hold the home. The insurance is one line of the decision.

What the Decision Looks Like in Practice

A borrower with a post-change FHA loan, a low original down payment, solid credit and a payoff near or below 80% of value has a strong case. A borrower with a loan nearing its eleven-year mark, or one with thin credit and a payoff in the high 80s, probably does not.

The wide middle is a spreadsheet exercise. If you want to see where your file lands, Lendmire can help you compare the options and what each one asks of the file. 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 brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. HUD Mortgagee Letter 2023-05

2. HUD Superseded Single Family Policy Documents

3. HUD Handbook 4000.1 excerpt on MIP cancellation

4. Fannie Mae Selling Guide B7-1-01

5. CFPB: When Can I Remove Private Mortgage Insurance PMI from My Loan

6. CFPB Homeowners Protection Act examination procedures

7. Fannie Mae Selling Guide B2-1.3-02