Refinancing from an FHA loan into a conventional loan is one of the most valuable money-saving moves available to homeowners, because it eliminates FHA’s lifetime mortgage insurance premium. If you started with an FHA loan and have since built equity and improved your credit, this refinance can lower your monthly payment significantly. Here is exactly how it works in 2026.
| Quick Answer: To refinance an FHA loan into a conventional loan, you generally need about 20% equity, a 620+ credit score, and a debt-to-income ratio under 45%. The main benefit is dropping FHA’s lifetime mortgage insurance. If you have enough equity, the new conventional loan carries no mortgage insurance at all. |
Table of Contents
- Why borrowers make this move
- Requirements to qualify
- Step-by-step process
- The MIP vs. PMI savings
- When it makes sense
- When to wait
- Costs to expect
Why Borrowers Make This Move
The number one reason is FHA mortgage insurance. As covered in our FHA vs. conventional comparison, FHA loans with less than 10% down carry a mortgage insurance premium (MIP) for the life of the loan. There is no way to cancel it by paying down the balance, only by refinancing out of the FHA program.
A conventional loan, by contrast, charges private mortgage insurance (PMI) only until you reach 20% equity, and none at all if you refinance with 20% equity already in place. Under Fannie Mae’s guidelines, conventional PMI is cancellable once you reach the equity threshold, unlike FHA’s permanent premium. For many Arizona homeowners whose property values have risen, refinancing FHA to conventional means erasing that monthly insurance cost entirely.
| Definition: MIP (FHA mortgage insurance premium) is often permanent on FHA loans. PMI (conventional private mortgage insurance) is cancellable and disappears at 20% equity. Refinancing swaps the permanent cost for a cancellable or nonexistent one. |
Requirements to Qualify
To move from FHA to conventional, you must meet conventional underwriting standards:
- Equity: Roughly 20% to avoid PMI entirely (you can refinance with less, but PMI would apply).
- Credit score: 620 minimum, with better rates at 680 and above.
- Debt-to-income ratio: Generally under 45%.
- Income documentation: Pay stubs, W-2s or tax returns, and bank statements.
- Appraisal: Confirms your current home value and equity position, measured against the conforming limits the Federal Housing Finance Agency publishes each year.
Our credit score for a conventional loan guidance and decoding mortgages article explain how lenders evaluate these factors. If your credit has improved since you took the FHA loan, you may now qualify easily.
Step-by-Step Process
Refinancing FHA to conventional follows a clear path:
- Check your equity using recent comparable sales or a quick estimate.
- Review your credit to confirm you are at 620 or above.
- Get a conventional refinance quote and a break-even analysis.
- Order an appraisal to verify value and equity.
- Complete underwriting with full documentation.
- Close on the new conventional loan, which pays off the FHA loan.
The whole process often takes a few weeks. Our why Elite Mortgage page describes how we keep refinance timelines tight.
The appraisal step deserves extra attention, because it is the hinge the entire refinance turns on. Your eligibility to drop mortgage insurance depends on your current loan-to-value ratio, and that ratio is set by the appraised value rather than what you originally paid. In a market where Arizona home values have appreciated, a homeowner who put down only 3.5% on an FHA loan a few years ago may discover the appraisal now places them at or beyond 20% equity, even though they have made only ordinary monthly payments. The opposite can also happen: if values have softened in your specific neighborhood, the appraisal may come in lower than expected and leave you just short of the threshold. Because so much rides on this single number, it is worth reviewing recent comparable sales with your advisor before you order the appraisal, so there are no surprises.
The MIP vs. PMI Savings
The savings come from eliminating mortgage insurance. Consider a homeowner who has reached 20% equity:
| Loan | Mortgage Insurance | Monthly Impact |
|---|---|---|
| FHA (current) | Lifetime MIP | Ongoing cost |
| Conventional (refinanced, 20% equity) | None | Insurance eliminated |
Removing the insurance premium is the headline win, and depending on rates, you may lower your interest rate at the same time. According to the Consumer Financial Protection Bureau, eliminating mortgage insurance is one of the clearest financial reasons to refinance. We model the exact monthly difference for each client.
When It Makes Sense
This refinance is a strong move when:
- You have reached roughly 20% equity through payments or appreciation.
- Your credit score has climbed to 620 or higher.
- Current rates are at or below your FHA loan rate.
- You will stay in the home past your break-even point.
Arizona’s home-price growth in recent years has pushed many FHA borrowers past the 20% equity threshold faster than expected, making this an ideal time to check. Our when to refinance guide helps you confirm the timing.
When to Wait
Hold off if:
- You have less than 20% equity (PMI would apply, reducing the benefit).
- Your credit is still below 620.
- Current rates are meaningfully higher than your FHA rate.
- You plan to move before reaching your break-even point.
In some of these cases, an FHA Streamline Refinance to a lower FHA rate may be a better interim step. We will tell you honestly which path fits.
Costs to Expect
Like any refinance, expect closing costs of roughly 2% to 5% of the loan amount, covering the appraisal, title, and lender fees. The key question is whether your monthly savings from dropping MIP (and possibly lowering your rate) recover those costs before you move. That break-even math, explained in our refinance timing article, determines whether the move pays.
Keep in mind that the savings from this particular refinance come from two distinct sources, and they do not always move together. The first is the elimination of FHA mortgage insurance, which is a guaranteed monthly reduction the moment you cross into conventional territory with enough equity. The second is any change in your interest rate, which depends entirely on the market and your credit at the time you refinance. In a period where rates have risen since you took your FHA loan, it is possible to drop the mortgage insurance yet accept a slightly higher rate, so the net benefit comes down to whether the insurance savings outweigh the rate difference. This is precisely why running the full numbers, rather than assuming any FHA-to-conventional move automatically saves money, is the responsible way to approach the decision.
Ready to Drop Your FHA Mortgage Insurance?
If your Arizona home has gained value and your credit has improved, you may be paying FHA mortgage insurance you no longer need to. Elite Mortgage AZ will check your equity, confirm your credit qualifies, and calculate exactly how much you would save by refinancing into a conventional loan, with a clear break-even analysis and no obligation. Our bilingual Yuma advisors handle this exact refinance constantly.
**See If I Can Drop FHA Mortgage Insurance**
Frequently Asked Questions
Can you refinance an FHA loan into a conventional loan?
Yes. Once you reach roughly 20% equity and a 620 or higher credit score, you can refinance an FHA loan into a conventional loan. The main benefit is eliminating FHA’s lifetime mortgage insurance premium, which can significantly lower your monthly payment.
How much equity do I need to refinance FHA to conventional?
You generally need about 20% equity to refinance into a conventional loan with no private mortgage insurance. You can refinance with less equity, but PMI would apply until you reach 20%, reducing the savings from dropping FHA’s insurance.
Will refinancing FHA to conventional save me money?
It can save a substantial amount by eliminating FHA’s lifetime mortgage insurance, especially if you also secure a lower interest rate. The exact savings depend on your balance, rate, and equity, so request a break-even analysis before deciding.
What credit score do I need to refinance from FHA to conventional?
You need a minimum 620 credit score to refinance into a conventional loan, with the best rates at 680 and above. If your credit has improved since you took your FHA loan, you may now qualify for noticeably better terms.
Is an FHA Streamline Refinance better than going conventional?
An FHA Streamline lowers your FHA rate with minimal paperwork but keeps mortgage insurance. Going conventional removes the insurance entirely once you have 20% equity. If your goal is to eliminate MIP, the conventional route usually wins long term.
Conclusion
Refinancing an FHA loan into a conventional loan is the standard way to escape FHA’s lifetime mortgage insurance, and for Arizona homeowners who have built 20% equity and a 620-plus credit score, it can deliver real monthly savings. The keys are equity, credit, current rates, and your break-even timeline. Run the numbers before you commit, and lean on a trusted Arizona lender to confirm the move actually saves you money.