How to refinance an FHA loan

Couple getting financial advice and refinancing their mortgage

Can I refinance an FHA loan?

You’ve managed to secure a Federal Housing Administration (FHA) loan and now you’re wondering, “Can I refinance this loan?” Well, the short answer is yes, you can.

Refinancing an FHA loan can give you advantages like lower rates, smaller monthly payments, and access to your home’s equity. In this guide, we will explain FHA loan refinancing, giving you the information to improve your financial situation.

Do you already know that refinancing from your FHA mortgage is the right move? You can keep reading to get additional tips and advice on FHA refinance, or apply today to start the process.

What is an FHA mortgage refinance?

An FHA mortgage refinance involves replacing an existing FHA loan with a new mortgage, often to get a lower interest rate, reduced mortgage term, or to take cash out of your home.

But can you refinance an FHA loan? Absolutely! You have the option to refinance your current FHA mortgage to a conventional loan or a new FHA loan.

Remember, refinancing involves its own costs and requirements, so it’s vital to weigh the pros and cons. Always consider your financial position and long-term goals before making a decision.

How soon after I close on my FHA mortgage can I refinance?

If rates change right after close, you may feel tempted to try to refinance right away, but you cannot always do so.

FHA rules state that you must have a minimum of six months worth of payments on the original mortgage for a cash-out refinance. It’s not possible to take cash-out of a mortgage if there isn’t sufficient equity.

For a ‘rate-and-term’ refinance, the loan-to-value ratio (LTV) will have to be at least 97.5% to qualify for a refinance.

Can I refinance an FHA mortgage to another loan type?

Yes, it is definitely possible to refinance an FHA mortgage to another loan type. You can refinance to a different loan type depending on your needs and financial situation. This can include options like a conventional loan or a government-insured loan.

You can even refinance from an FHA loan to an ARM (adjustable-rate mortgage) if it makes sense for your financial situation and goals.

However, it’s important to keep in mind that refinancing involves certain costs and requirements. You need to evaluate the benefits to ensure it’s worth taking that step. Switching from an FHA loan to a conventional one could save you money on mortgage insurance. 

How can I refinance to a conventional loan from an FHA loan?

Homeowners switch from an FHA loan to a conventional mortgage. They do this to get rid of the mortgage insurance premium (MIP) on their FHA loan.

Refinancing from an FHA loan to a conventional loan involves taking out a new mortgage loan and using it to pay off your existing FHA loan. To make this possible, you need to have built enough equity in your home. Typically, lenders require at least 20% equity on the home’s current value.

Your ability to refinance also depends on your credit score. Conventional lenders often require borrowers to have a credit score of at least 620. Also, your debt-to-income ratio should generally not exceed 43%.

The first step towards refinancing your FHA loan is to check your home’s current value and verify how much equity you have in it.

The next step is to review your credit score and financial situation to ensure you meet the requirements for a conventional loan.

Once you know you can meet the qualifications, it’s time to apply for a refinance, and work through the process with a lender.

Remember, while refinancing an FHA loan to a conventional loan can save you money, it’s not always the right move for everyone. You need to consider the closing costs of the new loan and calculate if the savings from dropping the MIP outweighs these costs.

Can I take cash out of my home if I have an FHA mortgage?

Sure, you can refinance an FHA-insured mortgage and extract cash from your home. The process is known as an FHA cash-out refinance, and it allows homeowners to convert their home equity into cash.

Borrowers should remember that there are specific requirements to meet. Also, they must hold the FHA loan for a particular period before they can apply. It’s crucial to compare the potential benefits against the possible risks.

How can I start the process to refinance my FHA mortgage?

If you’re ready to begin the process towards refinancing an FHA mortgage, you can start by applying online. Working with one of our experts will help you better understand what your available options are and how to best move forward. Whether you need a lower payment, a lower term, or want to take cash out of your home, Owning can help!

Using funds from a Cash-out Refinance to consolidate debt may result in the debt taking longer to pay off as it will be combined with borrower’s mortgage principle amount and will be paid off over the full loan term. Contact Owning for more information.

Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Restrictions may apply, contact Owning for current rates and for more information.

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