FHA Loan Refinance to Conventional: Types and Benefits

Refinance has come to be in demand lately. 84% of homebuyers wish to buy a home now and refinance it at a lower interest rate in the future. Moreover, you have multiple options, like simple refinance, streamlined refinance, etc., when it comes to FHA mortgages.

Can You Refinance an FHA Loan to a Conventional Loan?

Yes, you can refinance your FHA mortgage into a conventional loan. This allows you to skip mortgage insurance payments and borrow more money. You must meet the minimum qualification requirements to qualify for a conventional loan.

What are the Types of FHA Loan Refinance?

Here are the other types of loans that you can refinance your FHA loan into and their qualifications.

FHA Simple Refinance

As the name suggests, a simple refinance of an FHA loan is straightforward and allows you to reduce your mortgage and interest payments. Moreover, it also allows you to switch from an adjustable-rate mortgage to a fixed-rate mortgage.

A simple FHA refinance requires a credit score of 580. In addition, the borrower must be regular in making mortgage payments for the last 6 months. Moreover, a home appraisal will determine the actual change in the value of the house.

Apart from this, closing and prepayment costs may be rolled into the loan, provided the total loan amount does not exceed 97.75% of the current appraisal of the house. This allows you to avoid paying closing costs out of your pocket.

FHA Streamline Refinance

An FHA-streamlined refinance is almost the same as a simple refinance. However, the only difference is that it doesn’t require an appraisal or a credit report. Nonetheless, some lenders do have other requirements for FHA loan refinance, which include:

• You must have an FHA-insured loan.
• Must have made at least six mortgage payments on the existing loan.
• You shouldn’t have any late payments.
• Your existing loan must be there for a minimum of 210 days.
• You must prove that a refinance helps you save money due to the shorter term and low interest rates, with an increase in monthly payments capped at $50.

FHA Cash-Out Refinance

A cash-out FHA refinancing allows you to refinance your existing loan into a larger amount. You can take out the surplus money in the form of cash and use it for other purposes.

A cash-out FHA refinance has less lenient requirements than a simple or streamlined refinance, which include:

• You must have a minimum credit score of 580 and a debt-to-income ratio of 43% or lower.
• The property must be your primary residence, and you must’ve made regular mortgage payments for the past 12 months.
• Your loan-to-value ratio should not exceed 80% of the home’s value.

Benefits of FHA Loan Refinance

Refinancing an FHA loan has various benefits, such as:

• It allows you to change the duration of your loan, which, in turn, helps you increase or decrease the monthly payments at your convenience.
• You can refinance your FHA loan to a conventional loan and pay a down payment or build an equity of 20% to avoid or stop paying private mortgage insurance.
• Initially, if you choose an adjustable-rate mortgage, you can change it to a fixed-rate mortgage during the refinance.

Bottom Line

An FHA loan refinance has multiple advantages, like low down payments and credit score requirements. Apart from this, a refinance can help you adjust your monthly mortgage payments, lower interest payments, etc.

Moreover, through cash-out refinance, you can get surplus cash in a lump sum, which you can use for other purposes.

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