2024 FHA Loan Refinance Guide
FHA loans offer many benefits, including affordable interest rates and low credit score minimums, particularly compared to other mortgage programs.
They also have several refinancing options, which allow you to replace your current mortgage loan with a new FHA one — often with a lower interest rate or monthly payment.
Are you considering an FHA refinance? Here’s what to know about your options.
Can you refinance an FHA loan?
Yes, you can use an FHA refinance loan if you have an existing FHA loan or a different loan type altogether. However, if you currently have a non-FHA loan, you’ll need to use the FHA Cash-Out Refinance or FHA Rate and Term Refinance to switch to an FHA loan.
There are four types of FHA refinance loans, each designed to meet different goals and each with different eligibility requirements. However, you must meet general eligibility requirements to be able to use any of the programs.
These requirements include:
- Your current loan must be at least 210 days old from the original closing date.
- No payments more than 30 days late in the last six months.
- The home must be your primary residence.
4 Types of FHA Refinance Loans
Let’s review the four types of FHA refinance options and what each is best for.
| Loan Type | Description |
|---|---|
| FHA Simple Refinance | Lets you refinance your current FHA loan to get a lower rate or change terms with an appraisal. |
| FHA Streamline Refinance | Lets you quickly refinance your current FHA loan for lower payments or rates, with minimal paperwork and no appraisal. |
| FHA Cash-out Refinance | Lets you refinance any mortgage type and take cash from your home’s equity for expenses or debt. |
| FHA Rate and Term Refinance | Lets you refinance any mortgage type to get a lower rate or change terms with an appraisal. |
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FHA Simple Refinance
An FHA “simple refinance” is just a refinance from one FHA loan to another to get a lower interest rate, monthly payment, or both. You can also use a simple refinance to move from an adjustable-rate FHA loan to a fixed-rate one or to remove a borrower from your loan (as in a divorce).
Simple refinances require an appraisal to confirm your home’s value, and you’ll also need to agree to a credit check and submit financial documentation. With an FHA simple refinance, you can roll the closing costs into your loan amount, allowing you to refinance for less money upfront (though it could increase your monthly payment).
Best If: Your Finances & Home Value Haven’t Changed Much (or Have Improved)
If your income, credit score, and other financial details haven’t changed much (or have improved) since you took out your original FHA loan, an FHA simple refinance can be a smart option. You will need to apply for the loan and submit to a credit check (like you did with your FHA purchase loan), but because your finances haven’t changed much (or have improved), you should be able to qualify easily and without a problem.
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FHA Streamline Refinance
An FHA streamline refinance offers a quick and painless way to move from one FHA loan to another. It allows you to change your interest rate, payment, or term and often requires no appraisal, credit check, or financial assessment. This can make the process move quickly and help you avoid hiccups with qualifying.
The catch, though, is that you must be able to prove you’ll get a “net tangible benefit” from the refinance — meaning some sort of monthly or long-term savings on your loan costs. This can include at least a 0.5% reduction in your mortgage payment, a shift from an adjustable interest rate to a fixed one, or a shorter loan term.
Best If: You Need A Quick Refinance Or Are Worried About Qualifying
If speed is your goal, a streamline refinance is the way to go. It can also be smart if your finances or credit have changed or your home has gone down in value since you originally applied (since streamline refinances often don’t require credit checks, financial assessments, or appraisals).
You just need to be able to prove you’ll see a net tangible benefit from the new loan, be current on your payments, have had your loan for at least 210 days, and have no payments more than 30 days late in the last six months.
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FHA Cash-out Refinance
An FHA cash-out refinance allows you to take out a new FHA loan that’s larger than your current one and then keep the difference in cash. It’s essentially a way of borrowing from your home equity without taking on a new loan.
Instead, you replace your old loan with a new one — complete with a new rate, term, and monthly payment. Once you close on your loan, you’ll get a lump sum of cash to use however you like.
You can also use this refinance option if you don’t currently have an FHA loan but want to refinance into one. In this case taking out cash is optional.
Best If: You Need Cash Or Currently Have a Non-FHA Loan
Since you’re taking on a larger loan amount with a cash-out refinance, there’s a chance it increases your monthly payment, too (though that depends on other factors, like your interest rate and loan term). You also need to have your home appraised as part of the process, so if your home has lost value, you might not qualify. (Generally, your lender won’t loan you more than 85% of the home’s worth).
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FHA Rate and Term Refinance
An FHA rate and term refinance is a loan option that allows homeowners with an existing FHA or non-FHA mortgage to refinance without increasing the loan amount to get a new interest rate, adjust the loan term (length), or both. This type of refinance is designed to help borrowers lower their monthly payments, reduce their interest rates, or switch between fixed and adjustable-rate loans.
Best If: You Want to Lower Monthly Payments Or Currently Have a Non-FHA Loan
Since you’re taking on a larger loan amount with a cash-out refinance, there’s a chance it increases your monthly payment, too (though that depends on other factors, like your interest rate and loan term). You also need to have your home appraised as part of the process, so if your home has lost value, you might not qualify. (Generally, your lender won’t loan you more than 85% of the home’s worth).
FHA Refinance Requirements
The exact requirements for an FHA refinance depend on which program you’re using. Requirements for the FHA streamline program are less stringent than other options since no appraisal or credit check is required.
See below for a breakdown of the qualifying requirements for the FHA’s four refinancing programs.
| Simple Refinance | Streamline Refinance | Cash-out Refinance | FHA Rate & Term | |
|---|---|---|---|---|
| Credit Score Minimum | Typically 580+, depending on the lender | Usually none | Typically 580+, depending on the lender | Typically 580+, depending on the lender |
| Seasoning Requirement | Must have had loan for at least 210 days | Must have had loan for at least 210 days | Must have had loan for at least 210 days | Must have had loan for at least 210 days |
| Payment History | Must be current on all payments | Must have made at least six on-time mortgage payments; no payments over 30 days late in the last six months; no more than one payment over 30 days late in the last 12 months | Must have made at least six months of mortgage payments; no late payments in the last 12 months | Must have made at least six consecutive monthly payments on the current mortgage |
| Appraisal Required? | Yes | No | Yes | Yes |
| Other | Must occupy the home as your primary residence | Must receive a net tangible benefit from refinancing | Must have lived in your house for at least 12 months; must retain at least 20% equity in your home after refinancing | Must occupy the home as your primary residence |
The FHA Loan Refinancing Process
The process for getting an FHA refinance depends on which program you choose, but below are the general steps you’ll go through. Your loan officer can advise you on the exact steps you’ll need to complete for the loan program you chose.
- Evaluate Your Financial Situation: Determine your goals for the refinance and which program you can qualify for. You should also consider your home’s value, as this plays a role in which refinancing option you can choose.
- Choose the Right Refinance Option: There are four options. Talk to a mortgage professional if you’re not sure which one is right for your financial circumstances and goals.
- Check Eligibility: Double-check that you qualify for the FHA refinance you’re looking to apply for. You can also work on improving your credit score and pulling financial documentation if you need that for your applications.
- Shop for Lenders: Compare at least a few FHA lenders on loan offerings, qualifying requirements, loan processes, and other factors. You should also check online reviews and ratings.
- Submit an Application: Fill out your lender’s application and submit any required documentation. Depending on the refinance type, you may also need to agree to a credit check.
- Underwriting and Appraisal: Your lender then starts evaluating your application and underwriting your loan. They also send out an FHA appraiser to confirm your home’s value if your refinancing program requires one.
- Loan Approval: Your lender eventually approves your loan and schedules a closing date.
- Closing: Finally, you attend your closing appointment, sign your loan documents, and pay your closing costs.
Your refinance will officially replace your old loan with a new one. You’ll start making your new payment the following month.
FAQs about FHA Refinancing
How soon can you refinance an FHA loan?
That depends on the type of refinance you’re pursuing. With a simple FHA refinance, there is no time limit. Other FHA refinance programs require waiting at least 210 days since closing.
Do loan limits apply to FHA refinances?
Yes, there are strict limits to FHA loans, whether it’s your initial loan or a refinance. In 2024, the FHA loan limits range from $498,257 to $1,149,825, depending on where you live.
Do you still have to pay mortgage insurance on an FHA refinance?
Yes, you still have to pay both upfront and annual mortgage insurance on an FHA refinance. In some cases, you can roll your upfront costs into your loan balance.
Can you refinance an FHA loan to a conventional loan or vice versa?
Yes, you can refinance your FHA loan into a conventional loan, and you might want to do so to avoid paying mortgage insurance premiums in the future. Just keep in mind that conventional loans tend to be harder to qualify for than FHA loans. You can also refinance a conventional loan into an FHA loan, but you are limited to an FHA cash-out refinance.
Can you refinance an FHA loan to get rid of PMI?
PMI, or private mortgage insurance, is only paid on conventional loans. With FHA loans, you’ll pay MIP — or mortgage insurance premiums. Refinancing your FHA loan cannot help you avoid these costs.
Can you refinance to stop paying MIP?
No, refinancing cannot help you avoid mortgage insurance on FHA loans. For most FHA loans, including refinances, you pay mortgage insurance premiums for the life of your loan. In some cases, when you make a larger down payment, you can cancel mortgage insurance after 11 years.
Are you eligible for a FHA home loan?
Talk to one of our FHA experts to see if you qualify.
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