FHA vs Conventional Refinance: Which Is Right for You in 2026?

FHA MIP lasts forever on most post-2013 loans. Switching to conventional eliminates it — if you have the equity and credit score. Here is the full comparison.

By Aesepus Technology  · 

The Key Difference: Mortgage Insurance

The single most important difference between FHA and conventional refinances is how mortgage insurance works. This drives the decision for the vast majority of borrowers.

FHA MIP (post-June 3, 2013, <10% down): Annual MIP of 0.55% continues for the entire life of the loan. It cannot be removed by reaching 20% equity. The only way to eliminate it is to refinance into a conventional loan.
Conventional PMI: Required when LTV is above 80% (less than 20% equity). Automatically cancelled when you reach 20% equity (or can be requested at 80%). PMI rate is typically 0.2–1.5% depending on credit score and LTV — often less than FHA MIP for borrowers with 680+ scores.

If you took out an FHA loan after June 3, 2013 with less than 10% down, you are paying MIP forever unless you refinance. This is the primary reason millions of FHA borrowers switch to conventional once they build equity.

Side-by-Side Comparison: FHA vs Conventional Refinance

FeatureFHA RefinanceConventional Refinance
Minimum credit score580 (lenders often 620)620 (best rates at 740+)
Minimum equity / LTV3.5% down / 96.5% max LTV (streamline: no appraisal)3% min equity / 97% max LTV (no PMI at 80%)
Upfront MIP / feeUFMIP: 1.75% of loan (financed)None
Annual mortgage insurance0.55% for life (if originated post-2013, <10% down)PMI removed at 20% equity; none required at 20%+ equity
Rate vs. conventionalGenerally 0.1–0.3% higher than conventionalRate varies by score/LTV via LLPAs
AppraisalRequired for rate/term; not required for FHA StreamlineAlways required
Income verificationRequired for rate/term; not for FHA StreamlineAlways required
Loan limits (2026)$524,225 (standard) / $1,149,825 (high-cost)$806,500 (standard) / $1,209,750 (high-cost)
DTI limitUp to 57% with compensating factorsTypically max 45–50%
Streamline optionYes — FHA Streamline (no appraisal, no income docs)No streamline; full underwriting

See HUD's FHA loan program page for current MIP rates and guidelines.

FHA MIP vs Conventional PMI: Annual Cost Comparison

FHA charges a flat annual MIP of 0.55% regardless of credit score. Conventional PMI varies by score and LTV. Here is how they compare on a $300,000 loan balance:

Insurance TypeCredit ScoreLTVAnnual RateMonthly Cost
FHA Annual MIPAny90–97%0.55%$138
Conventional PMI760+90–95%~0.30%$75
Conventional PMI740–75990–95%~0.40%$100
Conventional PMI720–73990–95%~0.55%$138
Conventional PMI700–71990–95%~0.70%$175
Conventional PMI680–69990–95%~0.90%$225
Conventional PMI660–67990–95%~1.20%$300
Conventional PMI640–65990–95%~1.50%$375

Key insight: For borrowers with 720+ credit scores, conventional PMI is already cheaper than FHA MIP. For 680–719 scores, they are roughly equal. Below 680, FHA MIP may actually cost less. But remember: conventional PMI goes away at 20% equity — FHA MIP (post-2013, <10% down) never does.

Use the FHA Refinance Calculator to model MIP removal savings for your specific balance and equity position, and see how we calculate it on our methodology page.

2026 FHA Loan Limits vs Conventional Loan Limits

Loan limits determine the maximum loan amount each program covers. If your loan exceeds the FHA limit, you must use a conventional (or jumbo) loan:

Loan TypeStandard Limit (2026)High-Cost Area Limit (2026)Set By
FHA (1-unit home)$524,225$1,149,825HUD
Conventional (Fannie/Freddie)$806,500$1,209,750FHFA

The conventional conforming limit is $282,275 higher than the FHA limit in standard areas. If your loan is between these two numbers, you cannot use FHA — conventional is the only conforming option. Check FHFA's conforming loan limit page for high-cost area limits by county.

When FHA Refinance (or FHA Streamline) Wins

Your credit score is below 680. FHA rates are less sensitive to credit score than conventional. A 640-score borrower gets a better effective rate (lower rate + lower MIP vs higher rate + PMI) on FHA than conventional in many cases.
You have a high DTI ratio. FHA allows DTI up to 57% with compensating factors. Conventional typically caps at 45–50%. If your debt load is high, FHA may be the only option that approves you.
You don't qualify for conventional yet. If your equity is under 3% or credit score under 620, conventional won't approve you. FHA Streamline (if you have an existing FHA loan) lets you lower your rate with no appraisal and no income verification.
Your home value has dropped. FHA Streamline can refinance an underwater FHA loan (no appraisal required). Conventional requires an appraisal and at least 3% equity.

FHA Streamline Refinance Requirements

  • Must have an existing FHA loan
  • Must have made at least 6 payments on the current loan
  • Must be current (no late payments in 12 months)
  • Must provide a "net tangible benefit" — lower rate or payment, or ARM to fixed
  • No appraisal required; no income verification required
  • New FHA MIP still applies (0.55% annual, life of loan)

When to Switch From FHA to Conventional

You have reached 20% equity. At 20% equity, conventional has no PMI at all. Your FHA loan still charges 0.55% MIP every year. Switching eliminates MIP entirely — worth $138/month on $300K alone.
You have 10–20% equity and a 720+ credit score. At 720+ score, conventional PMI is 0.40–0.55% — equal to or less than FHA MIP. But conventional PMI will eventually disappear; FHA MIP won't. The switch pays off over time.
Your credit score has improved significantly. If you bought with a 640 score on FHA and now have a 720+ score, you qualify for conventional pricing that may result in a lower total monthly payment (lower rate + lower or no PMI vs FHA rate + MIP).
Home value appreciation has pushed your LTV below 80%. Rising home prices can push your effective LTV below 80% even without paying down principal. At that point, a conventional refinance eliminates MIP and may also lower your rate.

Break-Even on Switching From FHA to Conventional

Refinancing has upfront closing costs of $3,000–$6,000. If switching from FHA to conventional saves $200/month in MIP and PMI, you break even in 15–30 months. Use the Break-Even Calculator to see when the switch pays off for your numbers.

Real Example: $300K FHA Loan vs Conventional Switch

Assume a borrower who bought in 2022 with 3.5% down on FHA. Current balance: $278,000. Home value: $320,000. LTV: 86.9%. Credit score improved from 640 to 720.

Keep FHA Loan (7.50%)Switch to Conventional (7.25%)
Interest rate7.50%7.25%
Principal & interest$1,944$1,897
Annual MIP / PMI$127/mo (0.55% of $278K)$85/mo (0.37% of $278K)
Total monthly payment (P&I + MI)$2,071$1,982
Monthly savings—$89/month
Annual savings—$1,068/year
Break-even (at $4,500 closing cost)—~42 months
PMI removal (when LTV hits 80%)MIP never removed~$64K paydown from current; ~8 years + savings after

In this scenario, switching saves $89/month. The MIP never goes away on the FHA side. Once conventional PMI is removed, the savings jump to $212/month compared to keeping the FHA loan.

FHA vs Conventional: Which Should You Refinance Into?

Refinance into FHA if: You need lower credit score acceptance, higher DTI flexibility, an FHA Streamline to avoid appraisal/income docs, or you currently have a conventional loan and want FHA's more lenient underwriting (rare, but can make sense).

Refinance into conventional if: You have 20%+ equity (eliminate MIP entirely), credit score is 720+ and FHA MIP is costing more than PMI would, or your balance exceeds FHA loan limits.

Most FHA-to-conventional refinances are motivated by MIP elimination. If your equity hasn't reached 20%, also check if a FHA Streamline Refinance can lower your rate without a full appraisal or income verification while you wait for equity to build.

Frequently Asked Questions

Can you refinance an FHA loan into a conventional loan?
Yes — you need at least 3% equity (though 20% eliminates PMI), a 620+ credit score, full income verification, and an appraisal. The main motivation is eliminating FHA MIP, which never goes away on most post-2013 FHA loans.
When should you switch from FHA to conventional?
When you have 20% equity (eliminate MIP entirely), or when your credit score has improved enough that conventional PMI costs less than FHA MIP. Run the break-even calculation — typical payoff is 2–4 years if you save $80–$150/month.
What is FHA MIP and why doesn't it go away?
FHA MIP is mortgage insurance. For FHA loans originated after June 3, 2013 with less than 10% down, the annual MIP (0.55% of the loan) lasts for the life of the loan. Unlike conventional PMI, reaching 20% equity does not remove it. Refinancing into a conventional loan is the only way to eliminate it.
What credit score is needed to switch from FHA to conventional?
Minimum 620, but you won't get favorable pricing until 680+. At 740+, you get the best conventional rate. If your score improved significantly since your FHA origination, this is often the right time to make the switch.
Does FHA Streamline require an appraisal?
No. FHA Streamline Refinance skips the appraisal and income verification, letting you lower your rate on an existing FHA loan quickly. However, MIP continues on the new FHA loan — switching to conventional is the only way to eliminate MIP.

Related Guides and Calculators

Should You Switch From FHA to Conventional?

Calculate your MIP savings, break-even timeline, and how much you could save by eliminating mortgage insurance.

FHA Refinance Calculator → Break-Even Calculator FHA Streamline Guide

Sources & References