When Can You Refinance an FHA Loan to Conventional?

Refinancing an FHA loan to a conventional mortgage can be a financial decision for homeowners. FHA loans, backed by the Federal Housing Administration, offer accessible paths to homeownership. As a homeowner’s financial situation evolves and home equity grows, transitioning to a conventional loan might offer distinct advantages. This process requires meeting specific criteria and understanding the differences between these loan types.

Eligibility Requirements for a Conventional Refinance

Qualifying for a conventional refinance requires meeting specific financial benchmarks. A strong credit profile is necessary, with most lenders seeking a minimum credit score of 620. Borrowers with higher scores, such as 740 or above, generally qualify for more favorable interest rates and better loan terms. Your debt-to-income (DTI) ratio, which compares your total monthly debt obligations to your gross monthly income, is another important factor. Lenders commonly prefer a DTI of 43% or lower, though some programs may allow up to 50% for applicants with strong compensating factors.

Building sufficient equity in your home is a requirement for a conventional refinance. Many conventional loan programs prefer a loan-to-value (LTV) ratio of 80% or less, meaning you have at least 20% equity, to avoid private mortgage insurance (PMI). If you have less than 20% equity, some conventional refinance options may still be available, though they require PMI. For a cash-out refinance, where you borrow against your home’s equity, lenders generally cap the new loan at 80% of the home’s value, ensuring you retain at least 20% equity.

There isn’t a strict seasoning period to refinance from an FHA loan to a conventional loan. Lenders will require you to be current on your mortgage payments. The property must meet conventional loan standards, and the loan is typically for an owner-occupied primary residence. Lenders will also verify your employment and income stability, generally requiring at least two years of consistent income to demonstrate your ability to repay the new mortgage.

Differences Between FHA and Conventional Loans

A distinction between FHA and conventional loans lies in their mortgage insurance requirements. FHA loans mandate both an upfront mortgage insurance premium (UFMIP) and an annual mortgage insurance premium (MIP). The UFMIP is a one-time fee, currently 1.75% of the loan amount, typically financed into the loan. The annual MIP is paid monthly and, for loans with less than a 10% down payment, often remains for the entire loan term.

Conversely, conventional loans require Private Mortgage Insurance (PMI) only when the loan-to-value (LTV) ratio is greater than 80%. Unlike FHA MIP, conventional PMI can be canceled once your equity reaches 20% of the home’s original value, or it automatically terminates when your LTV drops to 78%. This ability to remove mortgage insurance is a common reason homeowners refinance from an FHA to a conventional loan. Loan amounts also differ; in 2025, the conventional conforming loan limit for a single-family home is $806,500 in most areas, extending up to $1,209,750 in high-cost regions. FHA loan limits are generally lower, ranging from $524,225 to $1,209,750 for a single-unit property in 2025, depending on location.

Appraisal standards present another difference. FHA appraisals are more stringent, focusing on the property meeting minimum health and safety standards set by the Department of Housing and Urban Development (HUD). This can include requirements for items like peeling paint or accessible attics and crawl spaces. Conventional appraisals primarily assess the property’s market value and overall condition, without the same level of detailed health and safety scrutiny. Conventional loans typically require a stronger credit history for approval and to secure competitive interest rates.

The Conventional Refinance Application and Closing Process

Initiating a conventional refinance begins with selecting a lender. It is advisable to compare offers from multiple lenders to find suitable terms and interest rates. Once a lender is chosen, you will submit a loan application. This typically includes documentation to verify your income, such as recent pay stubs and W-2 forms, along with asset statements like bank and investment account summaries.

Following the application, the lender will arrange for a property appraisal. This valuation determines the home’s current market value, crucial for calculating the loan-to-value ratio for the new conventional mortgage. The loan then proceeds to the underwriting stage, where the lender reviews all submitted documentation, verifies your financial information, and assesses the risk associated with the new loan. This review ensures all guidelines are met before approval.

Upon successful underwriting, you will receive loan approval and disclosures. These documents outline the final loan terms, interest rate, and all associated costs, providing a clear understanding of the financial commitment. The final step is the closing, where you will sign legal documents to finalize the new mortgage. During closing, various costs are typically paid, including lender fees, appraisal fees, title services, and taxes, which generally range from 2% to 6% of the new loan amount.