How to refinance an FHA loan

Apply for a new loan for a lower mortgage payment, better rate or longer term.

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Like many homeowners, you may have purchased your first home with an FHA loan. If you’re ready to refinance, find out if you should go for conventional, streamline or cash-out refinancing.

Can I refinance an FHA loan?

It’s likely you can, but how you refinance depends on your circumstances. Your three options are:

How to refinance an FHA loan

The refinancing process tends to take a few weeks. It differs slightly depending on your lender and loan type, but expect to go through these steps:

  1. Determine your home equity. This will help you find the right refinancing options are available to you.
  2. Compare your current loan with today’s interest rates. Then, do a break-even analysis and figure out how much money you’ll save — or lose — by refinancing.
  3. Choose a loan type. When deciding between a conventional, streamline or cash-out refi, think about the monthly payments and how long you’ll live in the home.
  4. Research qualified mortgage lenders. Make a shortlist of the best ones, and ask for good-faith estimates and quotes for the refinance.
  5. Decide on a lender. The FHA must approve the refinance, even if you’re moving to a non-FHA-insured lender.
  6. Apply for the new loan. Submit your application and supporting documents, such as pay stubs, tax returns, credit reports and asset statements. You could be asked to verify your identity with a copy of your passport, birth certificate or Social Security card, or provide utility bills or employment documents.
  7. For conventional refinance, hire a home appraiser. Send the appraisal report to your lender as soon as possible.
  8. Close your existing loan. Pay off your FHA loan as soon as your new lender distributes the funds.
  9. Attend your closing. Double-check the terms of your refinanced mortgage before paying the closing costs and signing the documents. Once you sign, you’re locked into the rate in the agreement unless — or until — you refinance again.
  10. Pay your new lender. Keep tabs on the market. Chances are, you may benefit from another refinance down the road.

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Compare refinancing quotes

Name Product Min. credit score State availability Loans offered
Figure Refinance
Apply in minutes for a cash-out refinance quote that won't hurt your credit.
Credible Refinance
Not available in: AZ, HI, MO, NV, NY, RI, UT, WA, WV
Mortgage refinancing
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Axos Bank
Available in all states
Conventional, Refinance, Jumbo, Home Equity, Fixed, Adjustable, FHA, VA, USDA
Explore a full suite of home loan options with this direct online lender.
Available in all states
Conventional, Refinance, Home Equity, HELOC, Jumbo, Reverse, FHA, VA, USDA
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When should I refinance my FHA loan?

Refinancing might make the most financial sense if you:

  • Want to take advantage of low interest rates. If your existing rate is higher than the market rate, it may be a good time to refinance.
  • Built up 20% equity in your home. Thanks to rising home values, you might have the leverage you need to refinance into a conventional loan. If you owe more on your mortgage than your home is worth, you can go ahead with a streamline refinance.
  • Reached a 78% loan-to-value ratio. At this point, you can convert to a conventional loan and drop the dreaded private mortgage insurance (PMI) that’s required with FHA loans.
  • Want to switch from an adjustable-rate to a fixed-rate mortgage. By refinancing, you can change the length and terms of your loan to suit your situation.
  • Can afford the closing costs. Often, closing costs can make or break a decision to refinance. Do the math. If you stand to save in the long-term and you can comfortably cover the closing costs, refinancing may be worth it.
  • Want to tap into equity if your property value has increased. If you have at least 15% equity and a year of on-time payments, you’re eligible for a cash-out refinance.

How soon can I refinance my FHA loan?

To refinance to a conventional loan, you’ll need at least 2.25% equity in your home. For a cash-out refinance, 15% is the magic number. If you want to get rid of private mortgage insurance, you’ll have to wait until you build up 20% equity or more.

If you’ve made on-time payments for at least 210 days — or six months — you can apply for an FHA streamline refinance. These are issued by private lenders and backed by mortgage insurance, so the process tends to be quicker. In most cases, you won’t need to verify your income, employment or credit, or get a home appraisal.

What should I watch out for?

Always read the fine print. Some obstacles you may come across are:

Conventional refinance

  • Closing costs. At 1% to 5% of the home’s value, this is the most significant upfront expense. Let’s say you’re refinancing a $200,000 loan with 3% closing costs. You’ll need to bring $6,000 cash to the closing table, or ask for a lender rebate.
  • Private mortgage insurance. If you haven’t built up 20% or more equity in your home, you’ll still have to pay PMI when you refinance. This may override any savings you’re scoring with a new interest rate, so weigh the costs.
  • No PMI refunds. The FHA won’t reimburse homeowners who refinance to a non-FHA-insured mortgage for their upfront PMI payments. If you refinance to another FHA loan, you may get a prorated refund.

Streamline refinance

  • Private mortgage insurance. You can’t escape these payments with a streamline refi.
  • Closing costs. You must be able to cover the closing costs — and you can’t increase your loan amount to do so.
  • Limits on cash out. You can’t take out more than $500 cash from the refinance.

Cash-out refinance

  • Occupancy. You must prove that you’ve occupied the property as your principal residence for the last 12 months. Your lender may ask for utility bills and employment documents.

Bottom line

Refinancing can help reduce your mortgage payments and interest rate. With FHA loans, you have three options: conventional, streamline and cash-out refinance.

Since the goal is always to save, make time to compare mortgage lenders.

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