FHA mortgage refinance: Types, requirements, pros and cons
Senior Content Writer
This article is for educational purposes only. JPMorgan Chase Bank, N.A., does not offer some of the loans referenced in this article. Any information described in this article may vary by lender.
Quick Insights
- FHA offers several refinancing options for borrowers who already hold an FHA-insured mortgage and for those who have other types of mortgages.
- FHA refinance options have different eligibility requirements, but most require you to meet occupancy, payment history and loan seasoning guidelines.
- Refinancing can lower your rate or payment in some cases, but it can also increase your monthly payment or increase total interest paid—especially if you extend your term, add closing costs to the loan or pay mortgage insurance. Consider your break-even point and total cost over time.
Refinancing could help you better match your home loan with your current financial goals. Refinancing may let you lower your monthly payment, switch to a shorter loan term or access your home’s equity through a cash-out refinance.
Before refinancing, you may want to compare the potential savings with the costs involved, such as closing costs and any applicable FHA mortgage insurance premiums. If you're considering a shorter loan term, the higher monthly payment should fit comfortably within your budget.
In this article, we’ll explain the four primary FHA refinance options. We’ll cover how each type works, the eligibility requirements, and the potential pros and cons—all to help you decide whether refinancing is right for you.
What is an FHA loan?
An FHA loan is a mortgage insured by the Federal Housing Administration. The loan is designed to help make homeownership more accessible, especially for borrowers with lower credit scores or smaller down payments. FHA loans have specific eligibility requirements and typically require a mortgage insurance premium (MIP), paid upfront and/or monthly. Upfront MIP (UFMIP) can be financed or paid in cash, while monthly MIP is required.
How does an FHA mortgage refinance work?
An FHA mortgage refinance replaces your existing loan with a new mortgage. Ideally, the new terms will better fit your current financial needs. Your loan terms will change, which could mean a higher or lower monthly payment, depending on the refinance option. To qualify, you generally need to meet the requirements for the applicable refinance option. These may include having an existing FHA-insured loan, meeting loan-seasoning standards and satisfying FHA and lender payment history requirements.
Types of FHA refinance loans
Let’s walk through the main refinancing options for an FHA loan that may be available to you.
FHA no-cash-out refinance
This option allows you to refinance your existing mortgage—whether it is currently an FHA loan or a conventional loan—into a new FHA loan to secure a lower interest rate or a better loan term. While you cannot extract your home's equity as cash, you can typically roll your closing costs into the new loan balance, which minimizes your out-of-pocket expenses at the closing table. It requires a full credit check, income verification and a home appraisal.
Who may benefit: Homeowners who want to lower their interest rate or monthly payment, or switch the rate structure of their mortgage loan.
Example: If you have an FHA ARM and prefer the stability of predictable monthly payments, you could use an FHA no cash-out refinance to switch to a fixed-rate mortgage
FHA Streamline Refinance
If you already have an FHA loan, the FHA Streamline Refinance offers a simplified process that typically waives the appraisal requirement. To qualify, you must demonstrate a, “net tangible benefit,” such as a reduced monthly payment or a transition from an adjustable to a fixed rate.
- Non-Credit Qualifying: A non-credit-qualifying Streamline Refinance generally requires limited borrower credit documentation and underwriting. You must still meet applicable FHA requirements, including payment history, seasoning and net-tangible-benefit requirements, and the lender may impose additional requirements.
- Credit Qualifying: This option is for when your refinance involves a significant change, such as removing a co-borrower from the mortgage. Qualifying requires full credit and income verification to ensure you can support the new loan structure.
Neither option requires a home appraisal, although mortgage lenders may have additional requirements beyond FHA guidelines.
You typically cannot roll the closing costs into the new loan amount—they’re due at closing. Some lenders may offer an option with lower out-of-pocket closing costs by charging a higher interest rate or lender credit. You may pay more over time through a higher rate, so compare total loan cost, not just upfront fees.
Who may benefit: Homeowners with an existing FHA loan who want to lower their interest rate or monthly payment with a simplified refinancing process.
Example: Let’s say you bought your home with an FHA loan at a 6.5% interest rate. If current FHA refinance rates are lower, an FHA Streamline Refinance may help lower your monthly mortgage payment. It replaces your existing loan with a new one at a lower rate—and it doesn't require a new home appraisal.
Requirements and how to qualify
To qualify for an FHA Streamline Refinance, you must:
- Have an existing FHA-insured mortgage.
- Have made at least six payments on the mortgage being refinanced.
- Wait until at least six full months have passed since the first payment due date.
- Wait until at least 210 days have passed since the closing date of the mortgage being refinanced.
- Meet FHA payment-history requirements and demonstrate a net tangible benefit.
A net tangible benefit is a reduced combined rate, a change from an ARM to a fixed-rate mortgage and/or a reduced term that results in a financial benefit to the borrower.
Because there is no appraisal needed, the process overall may be streamlined. Additional documentation may be requested depending on your individual situation. You may have to prove whether you’re occupying the property or not and that you’ve made at least six payments on your existing loan. Talk with your Home Lending Advisor to learn more.
Pros of an FHA Streamline Refinance
- FHA generally does not require a new appraisal.
- The process may require less documentation than other refinance options.
- A non-credit-qualifying Streamline Refinance may not require full credit underwriting, although lender requirements can vary.
Cons of an FHA Streamline Refinance
- Only available for existing FHA loans.
- Doesn’t allow you to borrow cash from your home’s equity, except for a small amount for minor adjustments at closing. The program only permits incidental cash back not to exceed $500.
- Closing costs still apply.
- You must meet FHA’s net tangible benefit requirement, so refinancing isn’t available unless it provides a meaningful financial improvement.
FHA cash-out refinancing
You may be able to use the proceeds for major expenses, such as eligible home improvements, tuition or consolidating certain higher-interest debts. Consider the total repayment cost before using mortgage debt to repay shorter-term obligations.
Because you’re getting cash as part of your loan, the requirements to qualify are generally stricter than those for an FHA Simple or Streamline Refinance.
Who may benefit: Homeowners with significant home equity who need cash for major expenses while refinancing their mortgage.
Example: If you have built equity over several years and want to renovate your kitchen, an FHA cash-out refinance could allow you to finance the project.
Requirements and how to qualify
To qualify for an FHA cash-out refinance, you will typically need the following:
- Own and occupy the home as your primary residence: All borrowers must have owned and lived in the property for at least 12 months before applying.
- Strong payment history: You will need to show that you’ve made your mortgage payments on time during the previous 12 months.
- Sufficient home equity: FHA cash-out refinances generally allow a maximum loan-to-value ratio (LTV) of 80%, meaning you will need at least 20% equity remaining after refinancing.
- Qualify based on your DTI ratio: Lenders review your DTI ratio, which is your monthly debt obligations compared to your gross monthly income. They do this to determine whether you can comfortably afford the new loan.
- Provide documentation on your income, assets and employment: Unlike a Streamline Refinance, a cash-out refinance often requires a lot of financial documentation during mortgage underwriting.
Pros of FHA cash-out refinancing
- Access your home’s equity as cash to help pay for home improvements, debt consolidation, education expenses, investment properties or other major financial needs.
- Potentially secure a lower interest rate by refinancing if market rates have declined.
- Combine your existing mortgage and borrowed equity into a single monthly mortgage payment.
- Borrow against your home’s value while continuing to benefit from FHA loan features, if eligible.
Cons of FHA cash-out refinancing
- Requires more equity and stricter qualification requirements than other FHA refinance options.
- Increases your mortgage balance, which may result in paying more interest over the life of the loan.
- Closing costs and FHA mortgage insurance may apply.
- Using your home’s equity reduces the amount of equity available for future borrowing or emergencies.
Refinancing from an FHA to a conventional loan
In some cases, you may want to refinance your FHA loan and replace it with a conventional loan. FHA borrowers often refinance to conventional specifically to eliminate ongoing FHA mortgage insurance premiums that may remain for the life of the loan in some circumstances. That is one of the most common reasons borrowers move from an FHA to a conventional loan.
How do I qualify?
- Prove that you meet credit and income requirements for that loan product.
- Meet the minimum credit score requirement.
- Work with your lender to have your property appraised to see if you have enough equity in your home.
The lender will have specific requirements for the new, conventional loan. This could mean you’ll have to provide paperwork to prove your income and assets. An appraisal is typically required, and refinancing to a conventional loan may take time.
Pros of refinancing from FHA to conventional loan
One potential benefit of refinancing to a conventional loan is avoiding FHA mortgage insurance or becoming eligible to request cancellation of private mortgage insurance after meeting the servicer’s requirements. PMI cancellation is not automatic at 20% equity in every situation, so review the loan terms and applicable requirements with your lender.
In summary
Refinancing can lower your rate or payment in some cases, but it can also increase your monthly payment or increase total interest paid—especially if you extend your term, add closing costs to the loan or pay mortgage insurance. Consider your break-even point and total cost over time.
To learn more about your options, speak with a Home Lending Advisor. If you’re interested in borrowing against your home’s equity, Chase also offers a cash-out refinance option that may suit your needs. Or if you’re ready to take the next step, learn how to begin the mortgage refinancing process.
