If you have an FHA home loan and wish to refinance, you have several options. You can refinance into another FHA loan or you can refinance into a conventional loan.
FHA loan options
Streamline refinance: A "streamline refinance" allows you to take advantage of low mortgage rates with limited documentation and underwriting requirements. In order to qualify for a streamline refinance, you must currently have an FHA home loan and be up-to-date on your mortgage payments. The refinance must result in a lower monthly principal and interest payment and you are not allowed to take any equity out of the property (no “cash out”). Of course, you will need to pay closing costs, which can be wrapped into the loan if you have enough equity in your property.
Cash-out refinance: If you have sufficient equity in your home, you can choose a cash-out refinance from one FHA loan into another. You will have to have an appraisal on your property to verify the available equity and you must meet credit qualification standards established by your lender.
Conventional loan refinance
FHA loans require both an upfront mortgage insurance premium and a monthly mortgage insurance premium, so if your credit score is high enough and you have more than 20 percent equity in your home, you may want to check refinance rates for a conventional loan. If you have less than 20 percent equity you will need to pay private mortgage insurance on a conventional refinance, so be sure to calculate that into your comparison of loan programs.
If you choose to refinance into a conventional loan, there is no refund for the upfront mortgage insurance premium you paid on your FHA loan. That money is refundable if you refinance from one FHA loan into another. Of course, in that case you will need to pay a new upfront mortgage insurance premium and monthly mortgage insurance premiums on the new loan.
Michele Lerner contributed to this answer
A 25-year expert observer of the mortgage and consumer debt markets, Keith Gumbinger has been cited in thousands of articles covering a wide range of consumer finance and economic topics in outlets ranging from the Wall Street Journal to the Bottom Line newsletters. He has been a featured guest on national broadcasts for CNN, CNBC, ABC, CBS and NBC television networks and has been heard on NPR and other national and local radio programs. Keith is the primary researcher and writer for HSH.com's MarketTrends newsletter and has authored or co-authored a number of consumer guides on mortgages, home equity, refinancing and more.
