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A Beginner’s Guide to FHA RefinancingHow to find today's FHA refinance rates
NerdWallet's mortgage rate tool can help you find competitive FHA refinance rates tailored to meet your needs. Just enter some information about the type of loan you're looking for and you'll get a customized rate quote in moments, without providing any personal information.
Your options: Common types of FHA refinance loans
The Federal Housing Administration offers several types of refinances for FHA loans. The best option for you will depend on the goal of your refinance.
Simple refinance. Like the name suggests, this refers to a basic rate-and-term refinance to a new FHA loan where you aren’t taking any cash out.
Streamline refinance. Streamline refinances make an FHA-to-FHA refinance easier by having fewer requirements. A credit-qualifying streamline refinance allows you to skip the FHA appraisal. A non-credit-qualifying streamline refinance has even fewer hoops to jump through, because the lender doesn't perform a credit check.
If you have a strong credit score and your debt is in check, a credit-qualifying streamline may be more beneficial, since you could get a better interest rate.
Cash-out refinance: With an FHA cash-out refinance, you take out a new, larger loan than what you previously owed on the mortgage. The difference between what you owed and the new mortgage amount goes to you in cash. One exception is a cash-out refinance used to buy out a former co-borrower, as in a divorce. In those cases, the FHA treats the cash-out refi as a rate and term refinance.
203(k) refinance: Similar to an FHA 203(k) loan, a 203(k) refinance allows you to roll the cost of repairs or upgrades to your home into your refi. The FHA has rules about what kinds of renovations can be financed with 203(k) funds and whether an FHA consultant has to sign off on the work. If that sounds like too much red tape for you, you may want to look into other options for paying for home renovations.
How to decide: Should I refinance my FHA loan?
There are several good reasons to refinance an FHA loan. Think about your financial goals and what you’d like to accomplish. Common reasons for refinancing an FHA loan include:
Canceling FHA mortgage insurance. Once you have 20% equity built up in your home, you could eliminate monthly FHA mortgage insurance payments by refinancing to a conventional loan.
Getting a lower interest rate. This reduces your monthly payment.
Paying off your mortgage faster. A shorter term might make your monthly payments go up, but you’ll pay less in interest over the life of the loan.
Tapping into your home equity. A cash-out refinance lets you access some of your home value as cash. Financing home improvements is a common use of the funds.
Adding or removing a borrower. For example, after a divorce, you’d need to refinance your mortgage to remove your ex-spouse from the loan.
How low should you wait for mortgage rates to drop? One rule of thumb says to wait to refinance until rates are 1% lower than your existing mortgage rate. But these days, even a half percentage point can make a big difference. Use your judgment to make the call that’s best for your budget.
What are FHA refinance closing costs?
With an FHA refinance, you'll pay many of the standard refinance closing costs that you would with any loan type. For example, you'll pay the lender origination fee, an appraisal fee if required, recording fees and so on. These usually run between 2% and 6% of the amount you're refinancing.
When closing on an FHA refinance loan, you'll pay an Upfront Mortgage Insurance Premium (UFMIP) at closing, just as with an FHA purchase. UFMIP costs 1.75% of the total loan amount. If you refinanced to a $200,000 loan, you'd pay $3,500 in UFMIP. (If your original FHA mortgage is less than three years old, you may get a partial refund for the UFMIP on your new FHA loan when you refinance.)
Can you refinance to get rid of FHA mortgage insurance?
For most borrowers, the only way to eliminate FHA mortgage insurance is to refinance from an FHA loan into a conventional loan. If you have an FHA loan, you're going to pay FHA mortgage insurance premiums (MIP) for 11 years or for the life of the loan, depending on the size of your original down payment.
In order to go from FHA to conventional, you'll need to be able to meet the qualification standards for a conventional loan. That means having a credit score of at least 620 — though a higher score could get you a lower interest rate — and a debt-to-income ratio no greater than 45%. You'll also need to have at least 20% equity in your home if you want to avoid having to pay private mortgage insurance, which is required on conventional loans if the homeowner has insufficient equity.
Learn more about FHA loans:
About the author: Kate Wood is a mortgages and student loans writer and spokesperson who joined NerdWallet in 2019. With an educational background in sociology, Kate feels strongly about inequality in homeownership and higher education.
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