Refinancing from FHA to Conventional to Eliminate MIP
If you have 20%+ equity in your home, converting from FHA to conventional eliminates monthly mortgage insurance permanently. Here's when it makes sense.
If you bought your home with an FHA loan in the past several years, there's a good chance you're paying for mortgage insurance you don't strictly need anymore. FHA loans originated after June 2013 carry mortgage insurance premium (MIP) for the life of the loan — even after you've built substantial equity. The fix isn't a rate-and-term refinance to a new FHA loan; it's converting to a conventional loan that doesn't require mortgage insurance once you cross 80% LTV.
Why does FHA mortgage insurance last forever?
Before June 2013, FHA MIP automatically dropped off once your loan reached 78% LTV. After June 2013, HUD changed the rules: if you put less than 10% down at origination (which is most FHA borrowers), MIP stays on the loan for its entire term. The only way to eliminate it is to refinance into a different loan product.
This rule change was a response to the FHA insurance fund running deficits during the post-2008 housing crisis. The agency needed sustained MIP revenue to rebuild reserves. The unintended consequence is that millions of homeowners are now paying mortgage insurance long after they've built enough equity to no longer need it.
How much does FHA MIP actually cost?
On a typical FHA loan, annual MIP is 0.55%-0.85% of the loan balance, paid monthly. On a $400,000 loan, that's $183-$283 per month — and it doesn't go down as your equity grows. Over 10 years, you might pay $25,000+ in MIP on a loan where you've had no realistic need for mortgage insurance for the past 5-7 years.
Compare that to conventional PMI, which is also typically $150-$300/month but automatically drops off once your loan reaches 78% LTV. The conventional product simply costs less over time because the insurance has a natural endpoint.
When does FHA-to-conventional conversion actually save money?
Three conditions need to be true: (1) you have at least 20% equity in your home, so the new conventional loan doesn't require PMI, (2) the conventional rate you can get is reasonably close to your current FHA rate (within 0.5-1.0%), and (3) you plan to keep the home long enough to recover the closing costs through the monthly savings.
If your current FHA rate is 6.5% and today's conventional rate is 6.75%, the conversion is almost certainly worth it because the MIP savings ($250+/month) dwarf the small rate increase. If your FHA rate is 3.5% and conventional is 7.0%, the rate increase wipes out the MIP savings and the conversion usually doesn't make sense.
What about appraisal requirements?
Conventional refinances require a full appraisal to confirm the home's current value and your equity position. The lender needs to verify that you're actually at 80% LTV or below at the new appraised value, not just at the inflated value you might assume from Zillow estimates. Appraisals typically cost $500-$800 and take 1-2 weeks.
If the appraisal comes in lower than expected, the conversion might still work — just at a higher LTV. If you end up at 81% LTV, the conventional loan will require PMI, which negates much of the benefit. In that case, you might wait, pay down the balance, or use a HELOC strategy instead.
Can I just request FHA MIP cancellation instead of refinancing?
For most post-June 2013 FHA loans, no. The MIP runs for the life of the loan regardless of your equity position. If you have a pre-June 2013 FHA loan, MIP will automatically drop off at 78% LTV with a 5-year payment requirement — no refinance needed. Check your loan documents or call your servicer to confirm which rules apply to your specific loan.
There's no equivalent to the conventional PMI cancellation request process for FHA loans originated after 2013. The only paths to eliminate MIP are: refinance to conventional, pay off the loan entirely, or sell the home.
What credit score do I need to qualify for conventional?
Conventional refinances generally require a minimum credit score of 620, though pricing is much better at 680 and significantly better at 720+. If you originated your FHA loan with a credit score in the 580-640 range (where FHA is the dominant product), you may need to improve your credit before the conventional conversion math works.
The difference between a 660 score and a 740 score on a $400,000 loan is typically 0.5-0.75% in rate — which translates to $130-$200 per month in payment difference. If you're close to a credit threshold, it can be worth waiting a few months to clean up your credit before pulling the trigger.
FHA-to-conventional conversion is one of the most reliably valuable refinances available right now, because FHA MIP is permanent on most modern loans and conventional loans drop PMI at 80% LTV. If you have 20%+ equity and your current FHA rate is reasonably close to today's conventional rate, the math almost always works. Run the numbers on your specific situation — the MIP savings often justify the refinance even when the rate ticks slightly higher.
See how this applies to your specific situation
In about 3 minutes, turn your loan, equity, and goals into a clear picture of what each option actually costs — and what it saves.
Run the Numbers →Illustrative estimates only. Closing costs, rates, APR, payments, lender fees, title fees, and eligibility vary by lender, property, credit profile, loan amount, and geographic location. This information is provided for educational purposes and is not a commitment to lend or a loan offer.