Conventional vs FHA Refinance: Full Comparison

Should you refinance to a conventional loan or stick with FHA?

Short answer: If you have 20% equity and decent credit, switch to conventional. You'll save thousands by dropping mortgage insurance.

Let me show you the math.

What's the Difference?

Conventional Loan:

• Backed by Fannie Mae or Freddie Mac (not the government)
• Minimum credit score: 620 (but 680+ gets you the best rates)
• Down payment/equity requirement: 5-20%
• Mortgage insurance (PMI): Required if you have less than 20% equity, drops off automatically at 20% equity
• Loan limits: Up to $802,650 in most areas (2026 limit)

FHA Loan:

• Insured by the Federal Housing Administration
• Minimum credit score: 580 (500 with 10% down on purchase)
• Down payment/equity requirement: 3.5%
• Mortgage insurance (MIP): Required for life of loan (if you put down less than 10%)
• Loan limits: Up to $498,257 in most areas (2026 limit)

The big difference that costs you money: FHA mortgage insurance never goes away. Conventional PMI drops off at 20% equity.

The Mortgage Insurance Problem

Let's say you have a $400,000 FHA loan.

FHA mortgage insurance costs:

• Upfront MIP: 1.75% of loan amount = $7,000 (financed into loan)
• Annual MIP: 0.55% of loan balance = $2,200/year = $183/month

You pay $183/month for the entire 30-year loan. That's $65,880 in total mortgage insurance costs.

Now let's look at conventional PMI:

Conventional PMI costs:

• Upfront: $0
• Monthly PMI (at 10% equity): ~$200/month
• Drops off when you hit 20% equity (usually 5-7 years if you make regular payments)

Total PMI paid: ~$14,400 (if it drops off after 6 years)

You save $51,480 by switching from FHA to conventional and letting PMI drop off.

That's why I tell almost every FHA borrower with equity: refinance to conventional and kill that mortgage insurance.

Broker's Tip: FHA loans originated BEFORE June 3, 2013 have mortgage insurance that drops off after 5 years or when you hit 78% LTV. If you have an old FHA loan, check your docs — you might already be eligible to drop MIP without refinancing.

When to Refinance from FHA to Conventional

Switch to conventional if:

1. You have 20%+ equity. This is the big one. Once you hit 20% equity, refinancing to conventional eliminates mortgage insurance entirely.

2. Your credit score is 680+. You'll qualify for the best conventional rates.

3. You plan to stay in the home 5+ years. Refinancing has costs ($3,000-$6,000). You need time to recover them.

4. Rates are close to what you have now. If rates jumped 2%, refinancing might not save you money even with MI removed.

Real Example: FHA to Conventional Refinance

Current FHA loan:

• Balance: $380,000
• Home value: $500,000
• Equity: 24% (you have $120,000 equity)
• Rate: 6.75%
• Monthly payment: $2,465
• Mortgage insurance: $174/month
• Total payment: $2,639/month

Refinance to conventional:

• New loan: $380,000
• Rate: 6.50% (slightly better than FHA)
• Monthly payment: $2,403
• Mortgage insurance: $0 (you have 24% equity)
• Total payment: $2,403/month

Monthly savings: $236 Annual savings: $2,832

Closing costs: $5,000 Break-even: 21 months

After less than 2 years, you're saving money. Over 30 years, you save $85,000+ in mortgage insurance.

Use our refinance calculator to run your numbers.

When to Stay with FHA

Keep your FHA loan if:

1. You have less than 20% equity. If you refinance to conventional with less than 20% equity, you'll STILL pay PMI. You might as well keep the FHA loan (unless you can get a much better rate).

2. Your credit score is below 680. Conventional rates get expensive with lower credit scores. FHA rates are more forgiving.

3. You're planning to move soon. If you're selling in 1-2 years, don't bother refinancing. Closing costs won't be worth it.

4. Rates have increased significantly. If you have an FHA loan at 5.5% and current rates are 7%, keep your low rate. The mortgage insurance savings won't offset the rate increase.

Real Example: When FHA Makes Sense

Current FHA loan:

• Balance: $320,000
• Home value: $380,000
• Equity: 16% (underwater at purchase, gained some value)
• Rate: 5.25%
• Mortgage insurance: $147/month

Conventional refinance quote:

• New loan: $320,000
• Rate: 6.50%
• PMI: $160/month (because you're under 20% equity)
• Higher payment due to rate increase

Verdict: STAY with FHA. Your rate is great (5.25%). Refinancing raises your rate AND you still pay mortgage insurance. Not worth it.

What to do instead: Wait until you hit 20% equity (home value appreciation or paying down principal), THEN refinance to conventional.

Credit Score Impact

FHA and conventional loans have different credit pricing.

FHA:

• Minimum score: 580
• Rate doesn't change much based on credit (620 vs 720 might be 0.25% difference)
• More forgiving for lower scores

Conventional:

• Minimum score: 620
• Rate varies significantly (620 vs 740 can be 1-1.5% difference)
• Rewards higher credit scores

If your credit score is 680+, conventional will almost always beat FHA.

If your credit score is 620-679, run the numbers. FHA might offer a better rate.

If your credit score is below 620, FHA is your only option.

Broker's Tip: If you're at 660 and climbing, wait until you hit 680 before applying for conventional. That extra 20 points can save you 0.5% on your rate.

Loan Limits

2026 Conforming Loan Limits:

Most areas:

• Conventional: $802,650
• FHA: $498,257

High-cost areas (e.g., San Francisco, LA, NYC):

• Conventional: Up to $1,204,000
• FHA: Up to $1,149,825

If your loan amount exceeds the conventional limit, you need a jumbo loan (different rules, usually higher rates). See our jumbo refinance guide.

If your loan amount exceeds the FHA limit, you can't use FHA. You're stuck with conventional or jumbo.

FHA Streamline vs Conventional Refinance

If you currently have an FHA loan, you have two refinance options:

1. FHA Streamline Refinance — Stay with FHA, lower your rate, keep mortgage insurance
2. Conventional Refinance — Switch to conventional, potentially eliminate mortgage insurance

FHA Streamline Pros:

• No appraisal required (in most cases)
• Minimal documentation (no income verification if you're lowering payment)
• Lower closing costs ($1,500-$3,000)
• Easier to qualify

FHA Streamline Cons:

• Mortgage insurance never goes away
• Can't take cash out
• Can only refinance if it lowers your payment

Conventional Refinance Pros:

• Eliminates mortgage insurance (if you have 20% equity)
• Better rates (if your credit is good)
• Can take cash out

Conventional Refinance Cons:

• Appraisal required
• Full income/asset verification
• Higher closing costs ($3,000-$6,000)
• Harder to qualify

My recommendation: If you have less than 20% equity, use FHA Streamline to lower your rate. Once you hit 20% equity, refinance to conventional and kill the mortgage insurance.

See our FHA Streamline guide for details.

Debt-to-Income (DTI) Limits

FHA:

• Max DTI: 50% (sometimes 55% with compensating factors)
• More flexible

Conventional:

• Max DTI: 45% (sometimes 50% with high credit + reserves)
• Stricter

What's DTI? Your total monthly debt payments (mortgage + car + credit cards + student loans) divided by your gross monthly income.

Example:

• Gross monthly income: $8,000
• New mortgage payment: $2,400
• Car payment: $400
• Student loans: $300
• Total debt: $3,100
• DTI: 38.75%

You'd qualify for both FHA and conventional.

If your DTI is 48%, you'd qualify for FHA but probably not conventional.

Broker's Tip: If you're right at the DTI limit, consider paying off a car or credit card before applying. Lowering your DTI by 2-3% can make or break your approval.

Cash-Out Rules

FHA:

• Max cash-out: Up to 80% LTV
• Can take cash with any refinance (not just streamline)

Conventional:

• Max cash-out: Up to 80% LTV (some lenders allow 85%)
• Slightly stricter requirements

Example:

• Home value: $500,000
• Max 80% LTV loan: $400,000
• Current mortgage: $320,000
• Max cash-out: $80,000

Both FHA and conventional allow this. The difference is in qualifying: FHA is more forgiving if your credit took a hit.

See our cash-out refinance guide for details.

Property Type Rules

FHA allows:

• Single-family homes
• 2-4 unit properties (if you live in one unit)
• Condos (if FHA-approved)
• Manufactured homes (if permanently affixed)

Conventional allows:

• Everything FHA allows, plus:
• Non-owner-occupied properties (investment properties)
• Higher-value condos not on FHA-approved list

If you're refinancing an investment property, you MUST use conventional (or a portfolio lender). FHA requires owner-occupancy.

See our investment property refinance guide.

Which Costs More to Close?

FHA closing costs:

• Origination: 1% ($4,000 on $400,000 loan)
• Appraisal: $400-$600
• Credit report: $50
• Title/escrow: $1,500-$2,500
• Upfront MIP: 1.75% ($7,000 on $400,000 loan) — This is the killer
• Total: $5,500-$7,000 (not including upfront MIP, which is usually financed)

Conventional closing costs:

• Origination: 1% ($4,000 on $400,000 loan)
• Appraisal: $400-$600
• Credit report: $50
• Title/escrow: $1,500-$2,500
• No upfront mortgage insurance
• Total: $4,000-$6,000

Conventional is usually cheaper upfront because there's no 1.75% upfront mortgage insurance fee.

Side-by-Side: Real Borrower Scenarios

Scenario 1: Recent Homebuyer, Low Equity

• Loan amount: $380,000
• Home value: $420,000
• Equity: 9.5%
• Credit score: 690

FHA Refinance:

• Rate: 6.50%
• MIP: $174/month
• Payment: $2,574/month

Conventional Refinance:

• Rate: 6.75% (higher because of low equity + credit score)
• PMI: $190/month
• Payment: $2,656/month

Winner: FHA (lower payment, and you're paying mortgage insurance either way)

Scenario 2: Established Homeowner, 25% Equity

• Loan amount: $360,000
• Home value: $480,000
• Equity: 25%
• Credit score: 740

FHA Refinance:

• Rate: 6.25%
• MIP: $165/month
• Payment: $2,380/month

Conventional Refinance:

• Rate: 6.00%
• PMI: $0 (you have 25% equity)
• Payment: $2,158/month

Winner: Conventional (save $222/month by eliminating mortgage insurance)

Scenario 3: Lower Credit Score

• Loan amount: $320,000
• Home value: $400,000
• Equity: 20%
• Credit score: 640

FHA Refinance:

• Rate: 6.50%
• MIP: $147/month
• Payment: $2,171/month

Conventional Refinance:

• Rate: 7.25% (low credit = rate hit)
• PMI: $0 (20% equity)
• Payment: $2,184/month

Winner: FHA (barely — but FHA is more forgiving of credit issues)

Frequently Asked Questions

Q: Can I refinance from FHA to conventional with the same lender?

Yes, but shop around. Your current lender has no obligation to give you the best rate. Get quotes from 3-5 lenders using our quote tool.

Q: How long do I have to wait after getting an FHA loan to refinance to conventional?

No waiting period for a rate-and-term refinance. For cash-out, most lenders require 12 months of payment history.

Q: Will I lose my low FHA rate if I refinance to conventional?

Yes. Refinancing means a new loan at current rates. If rates have gone up since you got your FHA loan, factor that into your decision.

Q: Can I refinance a conventional loan to FHA?

Yes, but why would you? FHA has mandatory mortgage insurance. The only reason to switch is if your credit tanked and you can't qualify for conventional rates.

Q: Do I need an appraisal to switch from FHA to conventional?

Yes. Conventional lenders require an appraisal to verify your equity and home value.

My Recommendation

If you have 20%+ equity and 680+ credit: Refinance to conventional. Eliminate mortgage insurance. Save thousands.

If you have less than 20% equity: Wait. Build equity through payments or home appreciation, then refinance.

If your credit is below 680: Stick with FHA or work on your credit before switching.

Not sure? Let me run the numbers for your specific situation.

Next Steps

Get personalized rate quotes for both FHA and conventional refinance:

Compare refinance rates →

I'm a California licensed mortgage broker with 15+ years experience (DRE #01212512). I'll show you exactly which option saves you the most money.

Related guides:

• FHA Streamline Refinance Guide
• How to Refinance Your Mortgage
• When to Refinance Your Home
• Refinance Closing Costs
• Current Refinance Rates