The Quick Read: A refinance is how you leave an FHA loan. A new loan pays off the old one, and the new loan can be conventional or VA. The conventional route is a standard refinance. The VA route is the VA cash-out refinance, which you can use even when you take no cash out. Both depend on your equity, credit, income and, for VA, your service eligibility, all subject to lender guidelines and full file review.
Why Do Borrowers Leave FHA?
Most borrowers leave FHA to get rid of the annual mortgage insurance premium. Across the wholesale programs Lendmire places FHA files with, the pattern is consistent: the premium is the cost people want out of, and the loan type is just the vehicle.
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 why that premium sticks. FHA charges an upfront premium of 1.75% of the base loan, which is usually financed. It also charges an annual premium that 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, the annual premium lasts for the full term. At or below 90%, it ends after eleven years. HUD set that duration rule in Mortgagee Letter 2013-04 for loans with case numbers on or after June 3, 2013. HUD's own balance page explains that older loans followed a different rule, with premiums ending at 78% LTV.
So a buyer who put down the 3.5% minimum on a newer loan generally can't cancel the premium by building equity. Refinancing is the exit. Other reasons people switch: they want a different term, they want to tap equity, or their credit has improved since they bought.
What Does "Switching" Actually Mean?
Switching means a new lender-approved loan pays off your FHA loan in full. Your FHA loan ends. The new loan has its own term, its own insurance or fee structure, and its own closing costs. Your old escrow account closes and a new one usually opens.
This is a consumer mortgage, so you receive a Loan Estimate after applying and a Closing Disclosure before closing. Compare those documents line by line on any refinance.
Nothing about this is automatic. You still qualify on income, assets and credit, and the home still needs to support the new loan.
How Does the Switch to Conventional Work?
The conventional path is a standard rate-and-term refinance, which Fannie Mae calls a limited cash-out refinance. Take more cash than the rules allow and it becomes a cash-out refinance with tighter limits.
Fannie Mae's Selling Guide sets several rules worth knowing:
- At least one borrower on the new loan must be on title when the application is taken.
- Only subordinate liens used to buy the property can be paid off and rolled in.
- A home that was listed for sale must be off the market by the disbursement date.
Leverage is where FHA borrowers often get surprised. Fannie Mae's eligibility matrix allows a limited cash-out refinance of a one-unit primary home up to 97% with a fixed rate, or 95% with an adjustable rate. A cash-out refinance on the same home tops out at 80%. But the matrix notes that Fannie Mae must own the existing mortgage to go above 95%. An FHA loan isn't a Fannie Mae loan, so that top tier generally isn't open to FHA borrowers. A lender should confirm that for your file.
In practice, that makes equity the deciding variable. If you bought with 3.5% down and values have barely moved, conventional may be out of reach for now. If you've built meaningful equity through paydown or appreciation, it opens up.
Will PMI Still Apply?
Possibly. If the new conventional loan is above 80% of the home's value, expect private mortgage insurance. The difference is that PMI can be cancelled. The federal consumer-finance regulator explains that you can request cancellation when the balance is scheduled to reach 80% of the home's original value, and the servicer must terminate it automatically at 78%. Those rights cover private mortgage insurance, not FHA's premium.
How Does the Switch to VA Work?
The VA route is the VA cash-out refinance, and it works even when you take no cash. This is the most misunderstood point in the whole topic.
VA's streamline refinance (the IRRRL) only refinances an existing VA loan. It can't take you out of FHA. The cash-out product can pay off any type of lien, which is why it's the door from FHA to VA. Refinances from a non-VA loan into a VA loan are their own categories, and one of them doesn't require the new loan to exceed the payoff. So "cash-out" is a product label, not an obligation.
The mechanics differ from the conventional path:
1. Eligibility. You need military service eligibility, shown through a Certificate of Eligibility, and you must live in the home.
2. Approved lender. The loan goes through a VA-approved lender.
3. Appraisal and underwriting. Expect a VA appraisal and full underwriting. Cash-out is not a streamlined product.
4. Net tangible benefit. Every VA cash-out must meet VA's benefit test, set in 38 CFR 36.4306. VA's lender presentation says the loan must satisfy one of eight benefit options. Eliminating monthly mortgage insurance is a common example. The lender also delivers cash-out disclosures to the veteran.
5. Funding fee. VA charges a one-time funding fee instead of monthly mortgage insurance. It can generally be financed, with exemptions for some veterans. Check the current schedule on VA.gov, since it varies by borrower.
Here's a bonus. Once you hold a VA loan, future refinances can use the VA streamline. That makes FHA to VA to streamline a real sequence for veterans who want flexibility later. The rules for how a VA cash-out works from a conventional or FHA loan are covered in Lendmire's walkthrough on applying for a VA cash-out refinance from a conventional or FHA loan.
VA, Conventional or Stay FHA: Side by Side
| Factor | Conventional | VA cash-out | Stay FHA |
|---|---|---|---|
| Who qualifies | Anyone with equity and credit | Eligible service members and veterans | Current FHA borrowers |
| Monthly insurance | PMI above 80% LTV, cancellable | None monthly | Annual premium continues |
| One-time cost | Closing costs | Closing costs plus funding fee | Closing costs, premium continues |
| Appraisal | Yes | Yes, VA appraisal | Streamline: none |
| Occupancy | Primary home for best terms | Must occupy | Streamline continues the loan |
If you only want a different FHA term, you have a third option. The FHA loan programs Lendmire arranges include the FHA Streamline, which refinances an existing FHA loan with no appraisal, a limited credit review and a net tangible benefit. The catch: the premium continues. It's a smaller step, not an exit.
Which One Fits You?
Equity and eligibility sort most borrowers.
- You're a veteran with little equity. VA may be the only exit. VA cash-out lenders often allow higher leverage than conventional, which opens options when equity is thin.
- You have solid equity and no military eligibility. Conventional is the natural path, and above 80% LTV you'd carry cancellable PMI at worst.
- You're eligible for both. Compare the VA funding fee against conventional PMI over the time you expect to keep the loan. This is a genuine toss-up that turns on equity and how long you'll stay.
- You want a lower payment but keep FHA. The Streamline may do it, with the premium continuing.
- You're considering a cash-out. FHA's own cash-out reaches 80% LTV on a home owned and occupied for 12 months before the case number. Conventional cash-out also caps at 80% on a one-unit home. VA can go higher, depending on the lender.
One note on occupancy. These are owner-occupied programs, so the home has to be your primary residence for the best leverage. Leave occupancy aside and the rest of the decision is math.
Is the Switch Worth It?
It's worth it when the savings outlast the costs. Closing costs, a new fee or premium, and a reset loan term all count against you.
Run the break-even this way. Add up the new loan's closing costs and any financed fee. Compare your monthly cost on the old loan with the new one, premium included. Divide the costs by the monthly savings. The result is how many months you need to stay to come out ahead.
Think through two quick cases in percentages. A borrower at about 90% LTV on a newer FHA loan who refinances to a conventional loan at 80% or less drops mortgage insurance entirely, so the savings are largest. A borrower already at or below 90% original LTV sees FHA's premium end after eleven years anyway, so the refinance case is weaker unless the other benefits matter. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Resetting the term matters too. Refinancing a loan that's ten years in to a new thirty-year term can lower the payment while raising total interest paid. That's the mechanics, not a verdict.
One more check: the unearned upfront premium. HUD has a refund process for upfront premiums, but how it applies when you leave FHA for another loan type is a question for HUD or your servicer. Don't count on a refund in your math.
What's the Step-by-Step Process?
1. Set the goal. Drop the premium, lower the payment, change the term or take cash. The goal picks the loan.
2. Check eligibility. Pull your COE if you're pursuing VA. Estimate your equity either way.
3. Compare Loan Estimates. Get more than one, for the same loan type. Costs you can shop for are separate from those you can't.
4. Appraisal. Needed for both destinations. Value sets your LTV.
5. Underwriting. Income, assets, credit and an automated finding. The finding governs most files.
6. Closing. The old FHA loan is paid off, the new one starts, and escrows reset.
Documents to gather: recent pay records, traditional personal-income documentation where needed, bank statements, your current mortgage statement, homeowners insurance, and for VA, your COE.
When Should You Not Switch?
Skip it, or wait, in these situations:
- You expect to move soon, before the break-even arrives.
- Your equity is too thin for conventional and you aren't VA eligible.
- Your credit has dipped since you bought.
- Your FHA loan is older than June 2013 and its premium is set to end at 78% LTV.
- Your original down payment was 10% or more and the premium ends after eleven years anyway. Terms depend on the lender's guidelines, the property type, the leverage, and a full review of the credit profile.
Common mistakes: assuming a VA streamline works on an FHA loan, assuming "cash-out" means you must take cash, and assuming any refinance drops mortgage insurance. It doesn't. Conventional above 80% LTV still carries PMI. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
What If the Appraisal Comes in Low?
A low appraisal changes your LTV, and LTV decides which exit is open. If value falls short, the loan needed to pay off your current debt may exceed the maximum LTV the conventional program allows. You can bring cash to close the gap, wait and rebuild equity, or switch to a different destination. VA, with its different leverage rules, sometimes stays open when conventional doesn't. Ask the lender to run both before you pay for a second appraisal.
Key Terms Defined
Annual mortgage insurance premium (MIP): The yearly charge FHA loans carry, billed monthly, whose length depends on term and original LTV.
Net tangible benefit: A test showing the new loan clearly helps you financially, which VA applies to every cash-out refinance.
Limited cash-out refinance: Fannie Mae's name for a rate-and-term refinance that pays off the old loan and costs without giving you meaningful cash.
Certificate of Eligibility (COE): The VA document showing you qualify for a VA loan.
Loan-to-value (LTV): Your loan balance divided by your home's appraised value.
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
Can I switch from FHA to VA?
Yes, if you're eligible for VA benefits. The route is the VA cash-out refinance, not the VA streamline. The new VA loan pays off the FHA loan, and it must pass VA's net tangible benefit test. Qualification is subject to lender guidelines and full file review.
Do I have to take cash out on a VA cash-out refinance?
No. VA treats a refinance of a non-VA loan as its own category, and the new loan doesn't have to exceed the payoff. The product name describes the loan type, not a requirement to receive cash. You'd still pay closing costs and the funding fee, which can generally be financed.
Will I owe PMI after refinancing to a conventional loan?
It depends on your LTV. Above 80% of the home's value, expect private mortgage insurance. At 80% or below, a conventional loan carries none. Unlike FHA's annual premium, PMI can be cancelled, with the CFPB describing request rights at 80% and automatic termination at 78%.
Can I refinance if I'm still within my first year?
It depends on the program. FHA's own cash-out requires the home to be owned and occupied for 12 months before the case number. Conventional rules add title requirements at application. Lenders also apply their own seasoning overlays, so ask the one you're working with.
Can I go back to FHA later?
Yes, if you qualify. FHA offers rate-and-term refinances up to 97.75% on a principal residence you've occupied for the previous twelve months, and cash-out up to 80%. Moving back would restart the FHA premium, so weigh that before leaving a loan with no monthly insurance. Final terms depend on the lender's guidelines, the property type, and the borrower's complete credit picture.
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 FHA Loan Balance at Final MIP Date
3. Fannie Mae Selling Guide, Limited Cash-Out Refinance Transactions
4. Fannie Mae Eligibility Matrix
5. CFPB: When can I remove PMI?
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 Choose Between an FHA Loan and Conventional Loan · How Much More House an FHA Loan Buys Than Conventional · How to Switch From an FHA or Conventional Loan Into a VA Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.