Can You Refinance an FHA Loan?

Refinancing an FHA loan is possible, but the best path depends on what you want the new loan to do.

Some borrowers want a lower rate or monthly payment. Others want to change their loan term, move into a more stable payment structure, tap equity, or find a path out of FHA mortgage insurance.

The main options are an FHA Streamline Refinance, an FHA Simple Refinance, an FHA cash-out refinance, or refinancing into a conventional loan.

FHA Refinance Types

When An FHA Streamline Refinance Makes The Most Sense

An FHA Streamline Refinance is designed for borrowers who already have an FHA-insured mortgage and want a simpler way to improve the loan. It’s often the best fit when the goal is to lower the rate, lower the payment, or move into a more stable loan structure without starting over with a full appraisal and full underwriting package.

The Department of Housing and Urban Development says the mortgage being refinanced must already be FHA-insured, must be current, and must provide a net tangible benefit to the borrower. HUD also says cash in excess of $500 is not allowed through the streamline process.

You’ll also need to meet seasoning requirements: HUD generally requires at least 210 days since closing and six on-time payments to qualify.

You might a streamline refinance when you meet the requirements and:

• a lower interest rate
• a lower monthly payment
• a faster FHA-to-FHA refinance path

When An FHA Simple Refinance Is Better

If you don’t meet the seasoning requirements or just need broader options to change your loan, an FHA Simple Refinance may offer more flexibility.

An FHA Simple Refinance is a rate-and-term refinance of an existing FHA mortgage that usually involves a new appraisal, income review, and standard underwriting. That extra work can make sense if you need a more complete reset of the loan file.

This option may be a better fit if:

• streamline rules do not work for your situation
• You want a more material term change
• the new loan needs to be based on current income, assets, and appraised value
• the lender needs a fully underwritten file instead of a lighter-touch refinance

When An FHA Cash-Out Refinance Fits

An FHA cash-out refinance is the FHA option if you want to tap home equity. It replaces the current mortgage with a larger FHA-insured loan and gives you the difference in cash up to the program limit, around 85% loan-to-value.

Because the loan balance increases, an FHA cash-out refinance option works best when the borrower has a clear plan for the cash and can comfortably handle the larger long-term loan cost.

This option may make sense when you have a clear use for the funds, like:

• a major renovation
• a planned debt payoff strategy
• another large financial objective with a clear purpose

HUD applies stricter loan-to-value, occupancy, and seasoning requirements to FHA cash-out refinances than to rate-and-term refinances.

Keep in mind that, if you want to keep your existing FHA loan intact and have equity built up, you might consider a HELOC or home equity loan if you’re looking to access equity.

Can Refinancing Remove FHA Mortgage Insurance?

You usually can’t remove the ongoing FHA mortgage insurance premium (MIP) if you stay in an FHA loan.

FHA-to-FHA refinances generally continue to carry FHA mortgage insurance under current program rules. That means borrowers who want to get out of long-run FHA mortgage insurance costs often compare an FHA refinance with a conventional refinance instead.

FHA Refinance Vs Conventional Refinance

How To Choose The Right FHA Refinance Option

The easiest way to choose is to start with the goal.

If You Want Less Paperwork

Start by looking at FHA Streamline Refinance eligibility.

If You Want A Full Rate-And-Term Reset

Look at FHA Simple Refinance.

If You Want Cash Out

Look at FHA cash-out refinance and make sure the long-term math works.

If You Want To Remove FHA Mortgage Insurance

Compare FHA-to-FHA options with a conventional refinance instead of assuming all refinances do the same thing.

The Bottom Line

You can refinance an FHA loan, but there is more than one way to do it.

An FHA Streamline Refinance can be a strong option if you meet seasoning and net tangible benefit rules and want a simpler FHA-to-FHA path. An FHA Simple Refinance can work better when a full appraisal and full underwriting provide needed flexibility. An FHA cash-out refinance may fit when you have enough equity and a clear use for the funds. h

If the goal is to remove FHA mortgage insurance, you might consider a conventional refinance.

Frequently Asked Questions

Can You Refinance An FHA Loan Into Another FHA Loan?

Yes. FHA Streamline Refinance and FHA Simple Refinance are both FHA-to-FHA options for existing FHA borrowers.

Can You Refinance An FHA Loan Into A Conventional Loan?

Yes. Many borrowers do this when they have enough equity and want a chance to remove FHA mortgage insurance.

Can You Refinance An FHA Loan Into A USDA Loan/

Possibly, but USDA has its own income and property eligibility rules, so it is a narrower path than FHA-to-FHA or FHA-to-conventional refinancing.

How Soon Can You Refinance An FHA Loan?

FHA refinancing timing depends on the refinance type and FHA seasoning rules. Streamline timing and cash-out timing are not the same.

Does An FHA Refinance Always Require An Appraisal?

No. FHA Streamline Refinance often does not require one, while FHA Simple Refinance and FHA cash-out refinance generally do.

Can You Get Cash Out With An FHA Streamline Refinance?

No. FHA Streamline Refinance does not allow meaningful cash back, and HUD says cash in excess of $500 is not allowed.