Yes, you can refinance an FHA loan, and you have two main paths: refinance into a conventional loan, or refinance into another FHA loan using the streamline program.

The choice depends on your credit score, how much equity you have built, and whether you want to keep the FHA insurance or drop it. A conventional refinance typically requires a stronger credit profile and at least 20 percent equity to avoid paying mortgage insurance again. An FHA streamline refinance has looser credit requirements and lower documentation, but you keep FHA insurance for the life of the loan.

Both routes can lower your interest rate or shorten your loan term, but they work differently and cost different amounts upfront. Understanding which one fits your situation now will save you money and time later.

Key Takeaways

  • An FHA streamline refinance requires minimal paperwork and no new appraisal, but you must have made at least six on-time payments on your current FHA loan.
  • Refinancing into a conventional loan lets you drop FHA mortgage insurance if you have 20 percent equity, but lenders will pull a new credit report and may require a home appraisal.
  • Closing costs for any refinance typically run 2 to 5 percent of the loan amount, though FHA streamlines are usually cheaper because they skip the appraisal.
  • Your break-even point—when monthly savings equal what you paid in closing costs—usually takes 1 to 3 years, so refinancing makes sense only if you plan to stay in the home.
  • You cannot refinance an FHA loan into a streamline if you are behind on payments or if your home value has dropped below what you owe.

FHA Streamline Refinance: The Faster Route

An FHA streamline refinance is designed to be quick and cheap. You do not need a new appraisal, a new employment verification, or a full credit underwriting. The lender pulls your credit to make sure you have not missed payments since you took out the original loan, but the bar is much lower than a standard refinance.

To may have access to, you must have made at least six consecutive on-time payments on your current FHA loan. If you are even one payment behind, you do not may have access to. Your loan must also be at least 210 days old (about seven months). The lender will verify that you still own the home and that there are no new liens against it, but that is the extent of the new documentation.

Closing costs for a streamline typically range from $1,500 to $3,000, depending on your loan amount and lender. Because there is no appraisal, you save $400 to $600 right there. The trade-off is that you keep FHA mortgage insurance. If you have built equity and your credit has improved, a conventional refinance might make more sense despite the higher upfront cost.

Refinancing Into a Conventional Loan

Switching from an FHA loan to a conventional loan means leaving the FHA program entirely. This is worth considering if you have at least 20 percent equity in your home, because then you can avoid paying mortgage insurance on the new loan. Without that equity cushion, a conventional lender will require you to pay private mortgage insurance (PMI), which can cost 0.5 to 1.5 percent of the loan amount per year—often more expensive than FHA insurance.

Conventional refinances require a full application. The lender will order a new appraisal, verify your employment and income, pull a detailed credit report, and review your bank statements. If your credit score has dropped or your income has changed, this route may not work. Most conventional lenders want a credit score of at least 620, though 680 or higher gets you better rates.

Closing costs run 2 to 5 percent of the loan amount. On a $250,000 loan, that is $5,000 to $12,500. You pay for the appraisal ($400 to $600), title search and insurance, underwriting fees, and lender fees. Some of these costs can be rolled into the new loan balance, but that means you pay interest on them for 15 or 30 years.

When a Streamline Makes Sense

Choose a streamline if your credit is not perfect, you do not have 20 percent equity yet, or you want to keep things simple. The streamline is also the right choice if interest rates have dropped only slightly—say, half a percent or less—because the low closing costs mean you break even faster.

A streamline also works well if you want to shorten your loan term without a full refinance. You can refinance a 30-year FHA loan into a 15-year FHA streamline, and because there is no new appraisal or employment verification, the process moves quickly. Your monthly payment will rise, but you will pay off the home years earlier and pay far less interest overall.

The main drawback is that you keep FHA mortgage insurance. If you have built significant equity—say, 25 or 30 percent—and your credit score is 680 or higher, a conventional refinance will likely save you more money over time, even with the higher upfront cost.

When a Conventional Refinance Makes Sense

Go conventional if you have 20 percent equity, your credit score is 680 or higher, and interest rates have dropped by at least 1 percent. The savings from dropping FHA insurance usually outweigh the higher closing costs within 2 to 3 years.

A conventional refinance also makes sense if you want to cash out some of your equity. FHA streamlines do not allow cash-out refinances—you can only refinance the amount you still owe. With a conventional loan, you can borrow up to 80 percent of your home's current value, pull out the difference, and use it for home repairs, debt payoff, or other needs. This flexibility comes at the cost of higher closing costs and stricter lending standards.

If your home value has risen significantly since you bought it, a conventional refinance lets you take advantage of that gain. An appraisal will show the new value, and you can refinance based on that number rather than what you originally paid.

Calculating Your Break-Even Point

Before you refinance, figure out when your monthly savings will equal what you paid in closing costs. This is your break-even point.

For example: You refinance and save $150 per month. Your closing costs are $3,000. Divide $3,000 by $150 to get 20 months. If you plan to stay in the home for at least 20 months, the refinance makes financial sense. If you think you might move or refinance again within that time, it probably does not.

Most people break even within 1 to 3 years. If your break-even point is longer than 5 years, the refinance is usually not worth it unless you are also shortening your loan term or cashing out equity for a specific purpose.

Documents You Will Need

For an FHA streamline, bring your current mortgage statement, proof of homeowners insurance, and a government-issued ID. That is usually all the lender needs. They will order a title search on their own dime.

For a conventional refinance, gather your last two years of tax returns, recent pay stubs, two months of bank statements, and your current mortgage statement. If you are self-employed, bring profit-and-loss statements. If you have changed jobs in the past two years, bring an employment verification letter from your current employer. The lender will order the appraisal and title search.

Having these documents ready before you apply speeds up the process and shows lenders you are organized. Some lenders offer online document upload, which can cut the timeline by a week or more.

Frequently Asked Questions

How long does an FHA streamline refinance take?

Most streamlines close within 2 to 4 weeks. Because there is no appraisal and minimal underwriting, the timeline is much shorter than a conventional refinance, which typically takes 4 to 6 weeks. Some lenders offer expedited streamlines that close in 10 to 15 days if you are willing to pay a small fee.

Can I refinance if my home value dropped?

Yes, with an FHA streamline. The streamline does not require an appraisal, so your home's current value does not matter. With a conventional refinance, a lower home value means less equity, which may disqualify you or force you to pay PMI. If you are underwater (owe more than the home is worth), neither option works.

Will refinancing hurt my credit score?

Refinancing causes a small, temporary dip—usually 5 to 10 points—because the lender pulls a hard credit inquiry. Your score typically bounces back within a few months as you make on-time payments on the new loan. The long-term benefit of a lower interest rate usually outweighs the short-term hit.

Can I refinance if I am behind on payments?

No. For a streamline, you must have made at least six consecutive on-time payments. For a conventional refinance, most lenders want to see 12 months of on-time payments before they will consider you. If you are struggling with payments, contact your current lender about a loan modification instead.

What if the appraisal comes in lower than expected?

If a conventional refinance appraisal is lower than you expected, you have a few options: walk away and keep your current loan, refinance for a smaller amount based on the new appraisal value, or ask the lender if they will accept the previous appraisal (some will). With a streamline, this is not an issue because there is no appraisal.