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Due to generous down payment and credit score requirements, an FHA loan could be an ideal starter mortgage. But if you improve your credit and build up some shares in your home, you may be able to avoid some FHA loan fees and get a better refinance rate by refinancing to a traditional loan – something not supported by the government.
Here’s what you need to know about refinancing your FHA loan with a traditional loan.
Can I refinance my FHA loan with a traditional loan?
Yes, you can refinance from an FHA loan to a traditional loan as long as you meet the standard of your traditional loan.
Requirements for refinancing your FHA loan with a traditional loan
These are some of the most common financial requirements for traditional loan refinancing.
- Minimum credit score of 620
- Capital of at least 20% of your property
- 45% Maximum Debt to Income (DTI) Ratio
- Proof of Income and Homeowner Insurance
When can I refinance my FHA loan into a traditional loan?
You can always refinance your FHA loan with a traditional loan, as long as you meet the lender’s requirements. However, states or lenders may require you to refinance in order to provide “net tangible benefits,” such as reducing mortgage payments or shortening the term of the loan. If you are looking for a cash-out refinance, there are slightly different requirements.
In contrast, you will have to wait for most of the year 210 days after closing to refinance into another FHA loan.
Why refinance my FHA loan with a traditional loan?
There are several reasons why you want to refinance your FHA loan.
- Remove mortgage insurance. Unlike traditional loans, many FHA loans require borrowers to pay mortgage insurance premiums (MIPs) over the entire loan term. However, if you have at least 20% of your shares in your home, you will not have to pay for Private Mortgage Insurance (PMI) (the equivalent of a traditional loan) if you refinance yourself with a traditional loan. Even if you still have to pay the PMI, unlike MIP, you can cancel your private mortgage insurance once you reach a certain level of stock.
- Interest rates have fallen. Rates remain much higher than in 2021 and 2022, but if you take out a loan recently, your fees today could be lower than what you’re currently paying. Also, traditional refinance rates tend to be lower than FHA’s refinance rates.
- Your credit score has been improved. Let’s say your credit score was 600 when you retrieved your FHA loan. Four years later, it is now 670. Or even better 700. This is a huge difference that will help you qualify for a more affordable loan.
- You can convert your home equity to cash. Traditional mortgages allow you to increase 80% of your home’s capital through cash-out refinance without paying mortgage insurance.
Disadvantages of refinancing from FHA to traditional loans
There are good reasons to refinance from FHA to traditional loans, but there are also drawbacks to this and refinancing.
- You may still pay Mortgage insurance For a while. In most cases, the only way to remove a MIP is to refinance, but you may still have to pay a PMI for a while after refinancing to a traditional one, but it can be more expensive than a MIP.
- Refinance is not free. Refinancing is essentially getting a new mortgage, which means you will be closing costs again. This is cheaper than a purchase loan, but still quite a bit on a large mortgage. Some lenders may be able to roll these costs into a loan, but ultimately new monthly payments will increase.
- You will need to run the entire loan process again. Remember all the work you had to do to get your first loan approved? Be prepared to do it again. Traditional refinancing involves many documents and interactions with lenders. According to Ice Mortgage Technology, the average time to close traditional refinance loans was 41 days as of May 2025.
Due to the time and costs involved in refinancing, when savings exceed the closing costs, you will ideally hold your refinance mortgage until you reach the break-in point. If you are planning on moving in the near future, or if you don’t have a long left in your loan term, refinance may not be wise.
How to refinance from FHA loans to traditional loans
Step 1: Decide why you want to refinance
The reason for refinance will determine the type of refinance you want. For example, if you are hoping to lock down lower fees or shorten your loan term, refinancing fees and term may be your best option. On the other hand, if you want to borrow against your stock (probably for housing improvement projects or debt settlement), cash-out refi might be more suitable.
Step 2: Investigate the same loan type
Once you have chosen the type of refinance you need, start looking for a lender. If you are satisfied with your current lender, contact us to see if there is a refinance option that is right for you. However, you can also request quotes from several other lenders to find the best possible rates and conditions.
Step 3: Evaluate the loan offer
After submitting your loan application, you will receive a mortgage estimate within 3 business days. Compare offers to see the interest rate and annual rate (APR) for each loan, as well as the closing costs.
Step 4: Fill in the application
Once you have chosen a lender, you will need to submit loan documents and financial documents, such as wage stubs and tax returns. You also need to prepare for the home assessment that many lenders need before closing their refinance.
Instead of refinancing your FHA loan with a traditional loan
Even if refinancing your FHA loan with a traditional loan is not for you, you can still take advantage of low interest rates with a reasonable FHA refinance. The program offers refinances without some of the more stringent underwriting tools, such as having to verify credits and perform evaluations.
To qualify for a reasonable FHA refinance, you must:
- You’ve earned your current FHA loan for at least 210 days since closing and at least six months after your first mortgage payment
- Have a record of your loan’s timely payments and no current delinquency
- You will receive “net concrete benefits” from refinancing. For example, lower monthly payments, or change from an adjustable rate loan to a fixed-rate loan
- Don’t take out more than $500 shares
If you or your co-borrower is in the military, you may also be eligible to refinance your VA, but if you are refinancing from a non-VA loan to a VA loan, you will need to choose the cash-out refinance option.
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Additional Reports by Taylor Freitas
