FHA Refinance vs. Conventional Refinance: Which Is Better?

If you’re refinancing to lower your payment, reduce your rate, or eliminate mortgage insurance, choosing between FHA and a conventional refinance can be confusing. The better option depends on your credit, equity, current rate, and how quickly you want to reach long-term savings. This guide explains the differences clearly so you can choose the refinance path that fits your financial goals.

Key Takeaways

• FHA refinances may have more flexible credit standards but require mortgage insurance.

• Conventional refinances may remove mortgage insurance once you have enough equity.

• FHA Streamline refinances offer faster approvals with limited documentation, but exact requirements vary by lender.

• Conventional refinances may provide better long-term savings if you qualify.

• Your choice depends on your credit score, equity level, loan-to-value ratio, and your plans for the home.

💡 Pro Tip: Don’t guess which refinance is best — upload your Loan Estimate to Fincast to instantly see which vetted lenders offer the most competitive terms.

What Is an FHA Refinance?

An FHA refinance replaces your current mortgage with a new FHA-backed loan. FHA refinances are often known for flexible credit requirements and competitive rates. Many homeowners choose this option when they want an easier qualification or when their credit has not improved enough for a conventional refinance.

FHA refinances work well when:

• You need more flexible credit or DTI requirements

• You want a streamlined process with minimal documentation

• You don’t yet have enough equity to remove mortgage insurance

FHA refinances offer accessibility and flexibility, especially for borrowers building credit.

💡 Pro Tip: FHA Streamline refinances often require no income verification or an appraisal, making them among the fastest refinancing options. Requirements vary by lender, so shop around to find the best deal for you.

What Is a Conventional Refinance?

A conventional refinance replaces your current mortgage with a loan not backed by the government. These loans typically require higher credit scores and stronger financial profiles, but may offer lower long-term costs (varies by lender). Most importantly, mortgage insurance may be eliminated when you reach sufficient equity (if the lender approves).

Conventional refinances work well when:

• You have strong credit and stable income

• You want to remove mortgage insurance

• You want more competitive long-term rate options

• You plan to stay in the home for several years

Conventional refinances may deliver significant long-term savings, especially if you qualify for competitive pricing.

💡 Pro Tip: If your equity is 20% or higher, a conventional refinance can remove mortgage insurance immediately.

FHA Refinance vs. Conventional Refinance: Side-by-Side Comparison

When an FHA Refinance May Make More Sense

An FHA refinance is often the better route when your credit or income doesn't yet meet conventional standards. FHA programs support borrowers who need more flexible guidelines while still offering competitive rates.

Choose an FHA refinance when:

• Your credit score is still improving

• You want to refinance with minimal documentation

• You don’t yet have 20% equity

• You want fast approval through an FHA Streamline loan

When a Conventional Refinance May Make More Sense

A conventional refinance is often the more cost-effective option if your financial profile qualifies. Removing mortgage insurance can create meaningful long-term savings, and conventional pricing may outperform FHA rates for high-credit borrowers.

Choose a conventional refinance when:

• You have strong credit (usually mid to high 600s or above)

• You have 20% equity or close to it

• You want to remove FHA mortgage insurance

• You plan to stay in your home long enough to maximize savings

💡 Pro Tip: Even if you're short 20% equity, compare pricing—conventional MI may still be cheaper than FHA MIP. Fincast can help you determine which loan makes the most financial sense.

Step-by-Step Framework: How to Choose Between FHA and Conventional Refinancing

1. Check your credit score. Higher credit often shifts benefits toward conventional, if you meet all other requirements.

2. Calculate your home equity. If you're near 20%, conventional loans may allow you to remove mortgage insurance.

3. Review your current rate. Refinancing makes the most sense when the new rate meaningfully improves your payment.

4. Estimate MI costs. FHA MIP vs. conventional PMI can change long-term savings.

5. Compare total refinance costs. Review closing costs and break-even periods (the time required to recoup closing costs through savings).

6. Get quotes for both loan types. Comparing the two offers side by side clarifies which option benefits you more.

Mistakes to Avoid

• Assuming FHA is always cheaper because of lower credit requirements

• Staying with FHA without checking if you now qualify for conventional

• Forgetting to factor mortgage insurance into long-term calculations

• Refinancing into a higher rate just to switch loan types

• Not comparing offers from multiple lenders

How Fincast Helps You Choose the Right Refinance Strategy

1. Upload your Loan Estimate securely.

2. Fincast benchmarks your deal across vetted lenders.

3. Lenders anonymously compete to beat your offer.

4. You choose the strongest offer — no spam, no extra credit pulls.

When comparing FHA and conventional refinancing, Fincast helps you evaluate both options so you can choose the option that delivers the greatest long-term savings.

FAQs

Is a conventional refinance always better than an FHA refinance?

Not always. Conventional refinances may offer long-term savings if you qualify, but FHA refinances provide easier approval and streamlined options for borrowers with lower credit. The key is to compare the bottom lines of both loans to determine which is best.

Can I switch from FHA to conventional?

Yes. Many homeowners refinance from FHA to conventional once they have enough equity and a stronger credit profile.

Does a conventional refinance remove mortgage insurance automatically?

If you have at least 20% equity, mortgage insurance can typically be removed immediately.

Is an FHA Streamline easier than a conventional refinance?

It can be, but it varies by lender and borrower profile. FHA Streamline typically requires minimal documentation and is often faster, but it does not eliminate mortgage insurance.

Which option lowers my payment more?

It depends on rate, equity, and MI costs. Conventional refinances may lower payments more for qualified borrowers, while FHA refinances may help those needing flexible guidelines.

👉 Ready to refinance? Whether you're upgrading from an FHA loan to a conventional loan or refinancing your existing loan, comparing real offers through Fincast helps you choose the refinance path that strengthens your long-term financial stability. Upload your Loan Estimate to Fincast to see — in minutes — which refinance option actually saves you more.