The Quick Read: A conventional refinance is an ordinary new loan whose proceeds pay off your FHA loan. No special “FHA-to-conventional” program exists, so you qualify under conventional rules. Most people do it to end FHA mortgage insurance, which on many loans lasts for years or for the full term. Whether it pays off depends on your equity, credit, and how long you will keep the home.
Why Do Homeowners Leave FHA?
The main reason is the mortgage insurance. FHA charges an upfront premium of 1.75% of the base loan, usually financed into the balance. It also charges an annual premium, which runs between 0.15% and 0.75% of the balance depending on term, loan amount, and LTV. LTV, or loan-to-value, is your loan balance divided by your home’s value.
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.
Here is the part that surprises people. On a thirty-year FHA loan above 90% LTV, the annual premium lasts for the full term. At or below 90% LTV, it ends after eleven years. Those duration rules come from HUD Mortgagee Letter 2013-04, and they apply to loans with case numbers assigned on or after June 3, 2013. That letter also rescinded the older automatic cancellation.
So paying the balance down will not drop the premium on a recent low-down-payment loan. Refinancing is the exit. Across the wholesale programs Lendmire places files with, this is a common reason an FHA borrower asks about switching. Other reasons include changing the loan term, adding a co-owner, or taking cash out. Lendmire's FHA loan programs page covers how the FHA side works if you want the full picture before deciding.
Will a Higher Appraisal Get My FHA Premium Cancelled?
No. A new appraised value is not used when testing for annual premium cancellation. The HUD Handbook 4000.1 servicing section also says the contract of insurance stays in force unless it is terminated under those rules.
Older loans are the exception. For loans closed on or after January 1, 2001 with case numbers before June 3, 2013, HUD's answers page says the premium cancels at 78% of the lesser of sales price or original appraised value. Longer terms also need at least five years of paid premium. If your loan is that old, ask your servicer to check first. You may not need to refinance at all.
How Does the Refinance Work, Step by Step?
The process runs in a clear order. Each step feeds the next.
1. Estimate your equity. Subtract your loan balance from your home's likely value, then divide by the value. Equity decides whether the new loan carries private mortgage insurance (PMI).
2. Pick the transaction type. Rate-and-term pays off the FHA loan and closing costs with limited cash back. Cash-out pays off the loan and hands you extra equity.
3. Apply and read the Loan Estimate. This standard form lists closing costs, cash to close, and projected payments, including mortgage insurance.
4. Go through underwriting. The lender verifies income, assets, credit, and your payment history on the current loan.
5. Get the appraisal. Expect one on most files. Waivers depend on the investor's automated findings and are not guaranteed.
6. Payoff and signing. The title or escrow company requests a payoff statement from your FHA servicer. Your servicer keeps remitting FHA premium through the month the loan is paid in full, so the payoff can include a partial month of it.
7. After closing. Your old servicer refunds the remaining escrow balance. Check your current loan documents for any prepayment penalty, which is rare but worth a look.
Compare your Closing Disclosure against your Loan Estimate before you sign. Any gap between the two deserves a question.
Does Conventional PMI Work Like FHA Premium?
No, and this is the biggest financial difference. PMI is private mortgage insurance. Federal law gives you rights to end it. Under the Homeowners Protection Act, you can ask your servicer to cancel PMI once you reach 80% of the home's original value, as CFPB explains. You need a written request, a good payment history, no junior liens, and proof the value has not fallen.
That law does not cover insurance under the National Housing Act, which is FHA. So if the new conventional loan carries PMI, it has statutory cancellation rights. FHA premium does not.
| Feature | FHA Mortgage Insurance | Conventional PMI |
|---|---|---|
| Upfront charge | 1.75% of base loan | Typically none |
| Ends when | Term or 11 years, by original LTV | You request at 80%, or automatic |
| Federal cancellation right | No | Yes |
| Needed at 20%+ equity | Depends on original LTV | Generally no |
Conventional PMI generally applies above 80% LTV. With 20% or more equity, most borrowers carry none.
Do You Qualify?
Conventional underwriting is stricter than FHA, and there is no streamline shortcut. Lenders look at four things.
- Equity. More equity means lower or no PMI. Conventional lenders set maximum LTVs that vary by occupancy, unit count, and transaction type. High-LTV options exist for some borrowers, but eligibility depends on investor ownership of your current loan, and an FHA-insured loan generally does not fit those programs.
- Credit score. FHA works from a 580 decision score across the wholesale programs Lendmire uses. Conventional lenders typically set a higher floor, and pricing tiers reward higher scores.
- Debt-to-income. FHA's base pair is 31/43 (housing / total), reaching 40/50 with documented compensating factors at the top tier. Conventional ratios follow their own investor matrix. Reserve requirements can rise on cash-out loans with higher ratios.
- Occupancy and title. You generally need to be on title and live in the home. A property held in an LLC typically does not fit this kind of refinance.
Every figure here is subject to lender guidelines and full file review. Nothing here is a commitment to lend.
What Does the Decision Look Like in Practice?
Picture a homeowner who bought with 3.5% down on a thirty-year FHA loan. Their original LTV was above 90%, so the annual premium runs the full term. They have since gained value and paid the balance down, and their new appraisal would put them under 80% LTV. A conventional refinance would carry no PMI. The premium disappears, and the saving is real. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Now change one thing. Same loan, but the appraisal supports only 88% LTV. A conventional loan would carry PMI. The question becomes whether PMI plus new closing costs beats staying put. Often the answer is "not yet." Waiting for more equity may serve this borrower better, because PMI, unlike FHA premium, can be cancelled later.
A third case: the borrower plans to sell in two years. Closing costs may never come back. That one is a pass.
The test is break-even. Divide total closing costs by the monthly savings. The result is the number of months before the refinance pays for itself. If you will move before then, the refinance loses money. Run it with both quotes in hand, because below roughly 20% equity, PMI can cancel out the premium savings.
Where Does the General Rule Break?
Several edge cases change the answer.
- Pre-June 2013 loans. Premium may cancel without a refinance once the 78% and five-year tests are met. Servicers sometimes miss these, so ask.
- Original LTV at or below 90% on a newer loan. Premium ends after eleven years. If you are close to that date, a refinance may be unnecessary.
- FHA Streamline holders. A Streamline refinances an existing FHA loan with no appraisal, a limited credit review, and a net tangible benefit, but the premium continues. Moving to conventional gives up that low-documentation path and requires full underwriting.
- Loans above the county limit. County loan limits apply, and a balance above the conforming limit falls outside the standard conventional framework. Jumbo options exist with their own rules.
- Manufactured homes. Conventional financing generally requires the home to be classified as real property on a permanent foundation.
- Multi-unit homes. Owner-occupied two-to-four-unit properties face tighter LTV limits than single-family homes.
- Buying out a co-owner. After a divorce, for example, joint ownership of at least twelve months can let the buyout count as a limited cash-out refinance under Fannie Mae's Selling Guide.
Credit history matters too. HUD sets waiting periods after a chapter 7 discharge (two years) and a foreclosure (three years). Those are HUD's FHA rules. Conventional investors set their own, usually longer.
What Does It Cost, and What Don't You Get Back?
A refinance creates a fresh set of closing costs. Those typically include an appraisal, title work, and lender charges. Some borrowers roll costs into the loan. That lowers cash due at closing but adds interest over time, as CFPB's closing disclosure guidance notes.
Be careful with "no-closing-cost" offers. The costs do not vanish. They are built into the rate or the balance.
Restarting a thirty-year clock can lower the monthly payment while raising total interest. A shorter term does the opposite. Pick the term that matches your goal.
Refund treatment of the old upfront premium when you leave FHA for a non-FHA loan is not something to assume. Do not count on a credit. Ask your loan officer to confirm it against HUD's rules before you rely on one.
Common Mistakes
- Assuming a new appraisal will cancel FHA premium. It will not.
- Refinancing at 85% LTV without pricing the PMI.
- Ignoring break-even when a move is likely.
- Skipping the servicer call on a pre-2013 loan.
- Rolling in costs without seeing the interest effect.
- Comparing only the payment, not the total cost over the time you will stay. Exact terms depend on the lender's guidelines, property type, leverage, and a full review of the borrower's file.
Key Terms Defined
MIP (mortgage insurance premium): The insurance FHA borrowers pay, as an upfront charge plus a yearly charge billed monthly.
PMI (private mortgage insurance): Insurance on conventional loans with less than 20% equity, with federal cancellation rights.
LTV (loan-to-value): Your loan balance divided by your home's value.
DTI (debt-to-income): Your monthly debts divided by your monthly gross income.
Net tangible benefit: A measurable gain from refinancing, such as a lower payment or shorter term.
Break-even: The months it takes for monthly savings to repay your closing costs.
Frequently Asked Questions
Can I refinance from FHA to conventional right after buying?
Often yes, but a lender will want to see the refinance makes sense for you. Conventional investors and lenders set their own waiting periods, especially on cash-out loans. Early on you also tend to have little equity, so PMI would likely apply.
Will I still pay mortgage insurance on the new conventional loan?
It depends on equity. Above 80% LTV, a conventional loan generally carries PMI. At 20% equity or more, most borrowers pay none. Unlike FHA premium, PMI has legal cancellation rights.
Is FHA mortgage insurance ever cancelled on its own?
Yes, in two situations. Loans with case numbers before June 3, 2013 can cancel at 78% once tests are met. Newer loans end after eleven years only if the original LTV was 90% or less.
Should I choose rate-and-term or cash-out?
Choose rate-and-term if you only want to replace the loan and drop FHA premium. Choose cash-out only if you need the money, since cash-out sets tighter LTV limits and extra seasoning rules. Cash-out also raises your balance.
What if I don't have enough equity yet?
Waiting or paying down principal may be smarter than refinancing now. An FHA Streamline can lower costs without an appraisal, but the premium continues.
Your 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.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. HUD Mortgagee Letter 2013-04 (hosted by FHFA)
2. HUD Handbook 4000.1 servicing section (MIP cancellation)
3. HUD FHA Answers: MIP for pre-June 2013 case numbers
4. CFPB: When can I remove PMI?
5. Fannie Mae Selling Guide B2-1.3-02
6. CFPB's closing disclosure guidance
This article is part of Lendmire’s FHA loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Switch From an FHA or Conventional Loan Into a VA Loan · FHA Loan vs Conventional Loan Appraisal on New Construction · Is a Conventional Loan Better Than FHA When Buying a Condo?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.