Yes, you can refinance an FHA loan, and you have two main paths

You can refinance an FHA loan into another FHA loan, or you can refinance into a conventional loan if your home has gained equity and your credit has improved since you bought it. The choice depends on your current financial situation, how much you still owe, and what interest rates are available to you right now. Most people refinance to lower their monthly payment, shorten the loan term, or remove the mortgage insurance premium that comes with FHA loans.

The process itself is similar to getting your original FHA loan — you fill out an process, provide income and asset documentation, and the lender orders a new appraisal. The main difference is that you already own the home, so the lender is mainly checking that the property still meets FHA standards and that your financial situation has not deteriorated.

Key Takeaways

  • FHA-to-FHA refinancing (called a streamline) requires less paperwork and a faster appraisal than refinancing into a conventional loan.
  • You can remove FHA mortgage insurance only by refinancing into a conventional loan, which requires 20 percent equity and a credit score typically above 620.
  • Refinancing costs money upfront — usually 2 to 5 percent of the loan amount — so you need to calculate whether your monthly savings will cover that cost within a reasonable timeframe.
  • An FHA streamline refinance does not require a full appraisal or income verification in most cases, making it faster and cheaper than other refinancing routes.

FHA streamline refinancing: the faster path

An FHA streamline refinance is a simplified process designed for borrowers who already have an FHA loan. You are refinancing with another FHA loan, so the lender does not need to verify your income or employment the way they would for a new purchase. The appraisal is also streamlined — the lender may use an automated valuation model instead of sending an appraiser to your home, which saves time and money.

Streamline refinancing works best if you want to lower your interest rate or shorten your loan term while keeping the same lender or switching to a different one. You still pay closing costs, though they are typically lower than a full refinance. The catch is that you must have made your FHA loan payments on time — usually at least six months of on-time payments before you can streamline.

The streamline process usually takes two to three weeks from process to closing, compared to four to six weeks for a conventional refinance. You will still need to provide some documentation — recent pay stubs, tax returns, and bank statements — but far less than you would for a new loan process.

Conventional refinancing: removing FHA mortgage insurance

If you want to get rid of the mortgage insurance premium that comes with FHA loans, you must refinance into a conventional loan. Conventional loans do not require mortgage insurance if you put down 20 percent or more at the time of purchase, and you can remove it once you have 20 percent equity in your home.

To may have access to for a conventional refinance, most lenders require a credit score of 620 or higher, though many prefer 640 or above. You will also need to show current income through recent pay stubs and tax returns, and the lender will order a full appraisal to confirm your home's current value. This is where the 20 percent equity threshold comes in — if your home is worth $300,000 and you owe $240,000, you have 20 percent equity and can refinance without mortgage insurance.

Conventional refinancing takes longer and costs more upfront than a streamline, but the long-term savings can be substantial. Removing mortgage insurance can lower your monthly payment by $100 to $300 or more, depending on your loan amount and the insurance rate you were paying.

Understanding refinancing costs and the break-even point

Refinancing is not free. You will pay closing costs that typically range from 2 to 5 percent of your new loan amount. On a $250,000 loan, that means $5,000 to $12,500 upfront. Some lenders allow you to roll these costs into the new loan, which means you do not pay them out of pocket but you pay interest on them for the life of the loan.

Before you refinance, calculate your break-even point — the number of months it will take for your monthly savings to cover the closing costs. If your new payment is $150 lower per month and your closing costs are $6,000, your break-even point is 40 months (about 3.3 years). If you plan to stay in the home longer than that, refinancing makes financial sense. If you might move or refinance again within that timeframe, the costs may outweigh the benefit.

An FHA streamline refinance has lower closing costs than a conventional refinance, which is one reason many borrowers choose it even if they could may have access to for conventional financing. The streamline might cost $2,000 to $4,000, while a conventional refinance might cost $5,000 to $10,000.

When refinancing makes sense and when it does not

Refinancing makes sense if interest rates have dropped significantly since you took out your original loan, or if your credit score has improved enough to may have access to for a better rate. It also makes sense if you want to remove mortgage insurance and you have built up 20 percent equity. Refinancing can also shorten your loan term — for example, moving from a 30-year loan to a 15-year loan — though this will raise your monthly payment.

Refinancing does not make sense if you are planning to move within a few years, if interest rates have not dropped enough to offset closing costs, or if your credit has worsened since you bought the home. It also does not make sense if you are behind on your current mortgage payments — most lenders will not refinance a loan in default or with recent late payments.

Run the numbers with a calculator or ask your lender for a loan estimate that shows your new payment, closing costs, and break-even point. This takes the guesswork out of the decision.

The role of your home's current value

Your home's appraised value determines whether you have enough equity to refinance into a conventional loan without mortgage insurance. If your home has lost value since you bought it, you may be underwater — owing more than the home is worth — which makes conventional refinancing impossible. In that case, an FHA streamline is your only option.

If your home has gained value, you have more options. A higher appraisal means you have more equity, which makes it easier to may have access to for a conventional refinance. It also means you might be able to do a cash-out refinance, where you borrow more than you owe and take the difference as cash. This is useful if you need money for home repairs or other expenses, but it lowers your equity and raises your monthly payment.

Frequently Asked Questions

How many times can I refinance an FHA loan?

There is no limit to how many times you can refinance an FHA loan, but each refinance costs money and resets your loan term. Most borrowers refinance once or twice over the life of the loan. If you are thinking about refinancing more than once in a short period, make sure the savings justify the repeated closing costs.

Do I need a new appraisal for an FHA streamline refinance?

Not always. Many FHA streamline refinances use an automated valuation model instead of a full appraisal, which saves time and money. However, some lenders may still order a full appraisal depending on the property and the lender's guidelines. Ask your lender upfront what to expect.

What if I have not made six months of payments on my FHA loan yet?

You cannot do a streamline refinance until you have made at least six months of on-time payments. You may still be able to do a conventional refinance if you meet the credit and equity requirements, but it will cost more and take longer. Contact your lender to discuss your options.

Can I refinance if my credit score has dropped since I bought the home?

An FHA streamline refinance does not require a credit check, so a lower score will not disqualify you. A conventional refinance does require a credit check, and most lenders want to see a score of 620 or higher. If your score has dropped below that, a streamline is your better option.

What happens to my FHA mortgage insurance if I refinance into a conventional loan?

Your FHA mortgage insurance goes away when you refinance into a conventional loan, as long as you have 20 percent equity. You will no longer pay the annual mortgage insurance premium, which can save you hundreds of dollars per year. This is one of the main reasons borrowers refinance out of FHA loans.