Can I Refinance FHA Into Conventional to Drop the MIP?

Yes — and for most FHA borrowers who put less than 10% down, this is the only way to ever get rid of FHA mortgage insurance. FHA MIP (mortgage insurance premium) stays for the life of the loan when you started with less than 10% down. A rate-and-term refinance into a Conventional loan removes MIP entirely if your new loan-to-value (LTV) is at or below 80%. Between roughly 80.01% and 95% LTV, the new loan would carry Conventional PMI (private mortgage insurance) instead — which is still usually a win because PMI is removable under federal law and FHA MIP isn't. The decision hinges on three numbers: your current home value (which sets the new LTV), the rate spread between your existing FHA rate and today's Conventional rate, and how long you plan to keep the loan.

The handbook view (what the rules actually say)

Three separate rule sets govern an FHA-to-Conventional refinance:

• FHA MIP duration: for FHA loans originated after June 3, 2013, MIP is required for the life of the loan when the original LTV exceeds 90% (which includes anyone who put less than 10% down). For LTVs at or below 90%, MIP cancels after 11 years. There is no other path to MIP removal inside FHA — paying down the loan does not cancel it. (Source: HUD Mortgagee Letter 2013-04 and HUD Handbook 4000.1, II.A.1.f — MIP Cancellation.)
• Conventional rate-and-term refinance: Fannie Mae allows a no-cash-out refinance up to 95% LTV (97% for certain HomeReady cases) on a primary residence 1-unit property. Above 80% LTV, the new loan requires PMI; at or below 80%, no MI is required at all. (Source: Fannie Mae Selling Guide B5-2 — Loan Eligibility, and B7-1-02 — Mortgage Insurance Coverage Requirements.)
• PMI removability (HOPA): under the federal Homeowners Protection Act of 1998, the servicer must auto-terminate PMI when the loan balance reaches 78% of the original property value based on the original amortization schedule, and must cancel PMI on borrower request at 80% LTV (subject to good payment history and equity-confirmation requirements). (Source: 12 USC §§ 4901–4910.)
• FHA Streamline Refinance (alternative path): stays in FHA but can reduce rate without a new appraisal in most cases. Does NOT remove MIP (you're still in FHA), and it carries a new upfront MIP (1.75% of the new loan amount) — though some of the prior upfront MIP may be refunded depending on timing. Use case is different: lower the FHA rate while keeping the FHA loan. (Source: HUD Handbook 4000.1, III.A.2 — FHA Refinances.)
• Cash-out vs rate-and-term distinction: a cash-out conventional refinance caps at 80% LTV on a primary 1-unit (no Conv MI required by definition since LTV is at the no-MI line). Rate-and-term goes higher in LTV but adds PMI above 80%. (Source: Fannie Mae Selling Guide B2-1.3 — Loan Purpose.)

The plain-English translation

What the rule means for an actual FHA borrower who's built some equity:

• If your home is worth enough today that your new loan balance is 80% or less of the current value, refinancing into Conventional removes mortgage insurance entirely. No FHA MIP, no Conv PMI, just principal and interest plus taxes and insurance.
• If your LTV is between 80.01% and 95%, the refi still works but the new loan has Conv PMI. That's still typically a win versus FHA MIP because Conv PMI will come off — either automatically when your balance hits 78% of the original value, or on your written request at 80%. FHA MIP at less than 10% down never comes off without a refinance.
• The math you actually need: the monthly MI savings (FHA MIP versus the new Conv payment, with or without PMI) versus the closing costs of the refinance. Divide closing costs by monthly savings — that's your break-even in months. If you're staying past break-even, the refi pays for itself.
• The rate environment matters too. If today's Conv rate is below your existing FHA rate, you save on both rate AND MI — a clear refi. If today's Conv rate is materially higher than your FHA rate, you may save MI but pay it back in higher interest. The right comparison is full PITI (principal, interest, taxes, insurance, MI) before and after.
• You need a new appraisal to confirm value (and therefore LTV). FHA Streamline can waive appraisal; FHA-to-Conv cannot — you're leaving FHA, which means a full Conventional underwrite including appraisal, full doc, and credit re-pull.

FHA streamline vs FHA-to-Conventional decision tree

The table is a guideline, not a quote. Rate spreads, MI factors, and closing costs vary; the right move is to price both refis side-by-side with full PITI and a break-even on the same day, instead of assuming one is "always" the answer.

Lender overlays — where the rules get tighter

Beyond the program rules, refis carry their own overlay layer:

• FICO floors on Conv refi: 620 is the conventional floor; most wholesale investors lend down to 620 with caveats. Lenders with a higher FICO overlay can effectively gate you out of FHA-to-Conv even when the rate math works.
• PMI partner pricing: Conv PMI is provided by a small set of MI companies (MGIC, Radian, Essent, National MI, Arch, Enact). Lenders don't always shop them — your PMI rate can vary materially based on which partner the lender defaults to. Brokers usually have access to multiple.
• Seasoning overlays: some investors require 6–12 months of payment history on the current FHA loan before a refi. Streamline has its own seasoning (210 days and 6 payments per HUD); conventional rate-and-term doesn't formally require it but some lenders impose it.
• Appraisal-management overlays: the FHA-to-Conv refi needs a full appraisal. Some lenders use slow AMCs (appraisal management companies) that can add weeks. A broker with faster appraisal-desk relationships can compress this.
• DTI overlays: Conventional DTI caps are tighter than FHA. Where an FHA file might have been approved at 50%+ DTI, a Conv refi typically caps at 45–50% depending on the AUS finding. If your DTI tightened after closing (kids, new car, new debt), Conv may not work even though FHA did.

Which lenders we actually use for this scenario

On the Conventional side I'm looking for two things: a wholesale investor with sharp PMI (Private Mortgage Insurance) pricing at the borrower's exact LTV/FICO cell, and one that doesn't overlay Fannie's standard guidelines for FHA-payoff refis. Three typologies:

A “PMI-aggressive” investor partners with multiple MI companies (Arch, MGIC, Radian, Essent, Enact, National MI) and shops the LLPA (loan-level price adjustment) and MI premium across all of them per file. They'll find the cheapest stack at your specific cell. A “single-MI” investor uses one MI partner and you take what's on the rate sheet — usually fine, occasionally meaningfully worse. A “lender-paid MI” (LPMI) investor structures the MI into the rate instead of as a monthly premium — sometimes the better math at higher LTVs, sometimes not, depends on how long the borrower plans to hold.

I run the math three ways on every FHA-to-Conventional refi: (1) borrower-paid monthly PMI through whichever MI company prices best, (2) single-premium PMI (one-time upfront, sometimes seller- or lender-credit-funded), and (3) LPMI. Whichever produces the lowest total cost over the borrower's expected hold period wins. Retail almost never runs all three.

Real-world cases

The clean case is the one everybody understands: borrower bought with 3.5% down on FHA two or three years ago, market appreciated, current LTV is now at or under 80%. They qualify Conventional with no PMI at all. We refi, MIP goes away, no PMI replaces it, monthly payment drops. Straightforward win.

The case where it gets interesting is the in-between LTV. I've seen this pattern: borrower's current LTV after appreciation is 82–88%. They can't get to 80% without bringing cash to closing, so the Conventional refi will have PMI. The question becomes whether the new PMI premium is less than the existing FHA MIP. Usually it is, often meaningfully, especially at 720+ FICO where Conventional PMI prices very competitively while FHA MIP is the same regardless of credit score. A typical case is — current FHA payment includes MIP, refi to Conventional at 85% LTV with monthly PMI saves the borrower a directional amount per month, and PMI is removable later under HOPA (Homeowners Protection Act, 12 USC §4901–4910) once the LTV hits 80% by amortization or 78% automatically. FHA MIP would have stuck around forever.

The case where the refi is wrong: rate environment has moved against the borrower's existing FHA note rate by more than the MIP savings. If your FHA rate is meaningfully below today's Conventional par rate, the MIP escape doesn't pencil. The break-even math matters more than the MIP narrative. I run it; if the breakeven is past the borrower's likely hold period, I tell them to keep the FHA.

How the big retail lenders typically handle this

This is where the LO comp conflict shows up. FHA Streamline refis are fast — no appraisal in most cases, no full income re-verification, file closes in a couple of weeks. LO compensation per file is usually similar to a full refi but the work is a fraction. So when a borrower calls a retail lender asking about lowering their FHA payment, the standard pitch is the streamline. The streamline keeps the MIP. It just lowers the note rate. So the borrower thinks they “refinanced their FHA” and walks away still paying lifetime MIP they could have escaped.

The honest comparison is FHA-to-Conventional versus FHA Streamline side by side, with the MIP-cost-over-hold-period math on both sides. I do that comparison on every file. Sometimes streamline wins — borrower has thin equity, plans to sell within a couple years, can't qualify Conventional. That's a legitimate streamline. But when the borrower has 15–20% equity and a 720+ FICO and plans to stay, FHA-to-Conventional is the move, and getting steered into the streamline costs them real money over the remaining loan life.

Bottom line: yes, you can refinance FHA into Conventional to drop the MIP, the handbook supports it cleanly, and the math usually works for borrowers with at least 15% equity and decent credit. Just make sure your loan officer runs both options against each other before recommending one.