Suppose you owe $300,000 on an FHA loan at 6.50% over 30 years, and your home is worth $400,000. Your principal and interest is $1,896.20, and annual mortgage insurance adds $137.50 a month, so you pay $2,033.70. Refinance into a conventional loan at the same 6.50% with $4,500 in closing costs and no PMI at 75% LTV, and your payment drops to $1,896.20. That saves $137.50 a month, with a break-even at month 33 and about $3,750 in net savings over five years. This guide shows you how to find out whether your numbers look like that and how to act on them. Have your latest mortgage statement, a rough home value, and your credit score range ready.
By Duane Buziak, NMLS #1110647
The seven steps:
- Step 1: Find Out Exactly What FHA Mortgage Insurance Costs You
- Step 2: Check Whether Your MIP Can Ever Cancel on Its Own
- Step 3: Estimate Your Home Value and Equity Position
- Step 4: Check Your Credit and Debt-to-Income Against Conventional Standards
- Step 5: Run the Break-Even Math on a Conventional Refinance
- Step 6: Compare Offers and Lock Your Rate
- Step 7: Close, Confirm the MIP Is Gone, and Handle the Old FHA Loan
- Common Questions About Dropping FHA Mortgage Insurance
Step 1: Find Out Exactly What FHA Mortgage Insurance Costs You
FHA insurance has two parts. The upfront premium (UFMIP) was 1.75% of the base loan amount and was almost certainly financed into your balance at closing. The annual mortgage insurance premium (MIP) is billed monthly. Look for both on your closing disclosure, and find the monthly piece on your statement under escrow or “mortgage insurance.”
Here is the math using 0.55% as the annual MIP rate. That is the rate on HUD’s schedule for a base loan under $726,200, a term over 15 years, and LTV above 95%. HUD adjusts these schedules, so confirm your bracket for 2026 on hud.gov.
- $300,000 balance × 0.55% = $1,650 per year
- $1,650 ÷ 12 = about $137.50 per month
- Over five years, that is $8,250 for coverage that protects the lender, not you
Two things make this feel expensive. MIP is not priced on your credit score, so a 780 borrower pays what a 640 borrower pays. And on most loans it does not fall off when you reach 80% LTV.
Mistake to avoid: assuming MIP cancels automatically at 20% equity. That is the conventional PMI rule under the Homeowners Protection Act. It does not carry over to most post-2013 FHA loans, and plenty of borrowers pay for years waiting on a cancellation that never comes.
Step 2: Check Whether Your MIP Can Ever Cancel on Its Own
Find the FHA case number date on your closing documents. For loans with case numbers assigned on or after June 3, 2013, HUD ties MIP duration to your down payment at origination. Confirm the current wording in HUD’s mortgage letters on hud.gov.
| Down payment at origination | Original LTV | Annual MIP duration |
|---|---|---|
| 3.5% | 96.5% | Life of the loan |
| 5% | 95% | Life of the loan |
| Under 10% | Above 90% | Life of the loan |
| 10% or more | 90% or lower | 11 years |
Loans from before that date follow older rules, and some of them allow MIP to drop once the balance reaches a set LTV after a minimum number of payments. If your case number predates June 3, 2013, ask your servicer in writing when your MIP is scheduled to end.
Decision point: if MIP ends within a year or two, waiting may beat paying closing costs to refinance. If it runs 11 years from a distant start date or for the life of the loan, continue to Step 3. Most borrowers who put 3.5% down land in that second group.
Step 3: Estimate Your Home Value and Equity Position
Loan-to-value (LTV) is your loan balance divided by your home’s value. For example, a $285,000 balance on a $380,000 home is 75% LTV. Equity gets you further than most FHA borrowers expect, because several years of appreciation plus principal paydown can move you from 96.5% LTV to well under 80%.
On a conventional rate-and-term refinance, 80% LTV or lower means no mortgage insurance at all. Between 80% and 97% you pay PMI, but it is priced on your credit and can be cancelled later.
To estimate value, use these:
- Recent sold prices of similar homes within a mile or so, from the last three to six months
- Your county assessor’s record, which is a starting point, not a market price
- A lender-ordered appraisal, which is the number that ultimately counts
Duane Buziak can run this estimate for you during a soft-pull review, so you do not need to guess.
For a Virginia reference point, the 2026 baseline conforming loan limit set by FHFA is $832,750. High-cost Northern Virginia localities such as Fairfax and Arlington are eligible for higher limits, up to a ceiling of $1,249,125. Check your county’s exact figure on fhfa.gov, since most FHA balances sit comfortably under the limit anyway.
Mistake to avoid: relying only on an online estimate. Those tools can miss by tens of thousands of dollars in either direction, and the appraisal decides which side of 80% you land on.
Step 4: Check Your Credit and Debt-to-Income Against Conventional Standards
Conventional PMI is priced heavily on credit score. A borrower in the 740s pays far less than one in the 660s, and at 80% LTV or lower the score matters mostly for your rate. Fannie Mae’s eligibility matrix sets minimum scores and debt-to-income (DTI) limits for conventional loans. Minimums have generally sat around 620, with DTI ceilings that depend on how the loan is underwritten, but verify current numbers in the matrix before you apply.
You do not have to guess where you stand. Duane Buziak offers soft-pull pre-qualification, so you can see conventional options without a hit to your credit score.
If you have a few weeks before applying, these moves help:
- Pay revolving balances down, ideally below 30% of each card’s limit, and lower is better.
- Avoid opening new accounts or financing anything big until closing.
- Pull your reports and dispute any errors, which can take 30 days to resolve.
- Calculate your DTI: monthly debts plus the new housing payment, divided by gross monthly income.
Decision point: if your score has improved since you took the FHA loan, you are the strongest candidate to leave FHA. FHA was priced for the borrower you were then. A conventional loan can price the borrower you are now.
Step 5: Run the Break-Even Math on a Conventional Refinance
Break-even month is closing costs divided by monthly savings. Here is the comparison using a $300,000 balance at 6.50% on a 30-year term for all three columns. The rate, the $4,500 in closing costs, and the 0.45% PMI rate are illustrations, not quotes.
| FHA today | Conventional at 80% LTV (home value $375,000) | Conventional at 90% LTV (home value $333,000) | |
|---|---|---|---|
| Principal and interest | $1,896.20 | $1,896.20 | $1,896.20 |
| Mortgage insurance | $137.50 (MIP) | $0 | $112.50 (PMI at 0.45%) |
| Total monthly payment | $2,033.70 | $1,896.20 | $2,008.70 |
| Closing costs | $0 | $4,500 | $4,500 |
| Monthly savings | n/a | $137.50 | $25.00 |
| Break-even month | n/a | Month 33 | Month 180 |
| 5-year net result | n/a | About $3,750 ahead | About $3,000 behind |
The 90% column shows why equity matters. The PMI there is cancelable, though, and FHA’s MIP may not be, so a long horizon changes the answer. Run both the five-year and the full-ownership view.
Rate caveat: removing MIP can justify a refinance even when the new rate is slightly higher. A rate that is 0.25 points higher on $300,000 adds roughly $50 a month, which can still be less than $137.50 in MIP. Check current average rates on Freddie Mac’s PMMS, and remember they are weekly averages as of publication, not your quote.
Ask about no-out-of-pocket closing options if cash is tight. Also know that a refund of part of your upfront premium is generally available only when you refinance into another FHA loan, so do not count on one here. An FHA streamline lowers your rate but keeps MIP, and in some cases only reduces it, so it does not get you out of FHA mortgage insurance.
Step 6: Compare Offers and Lock Your Rate
Request Loan Estimates and set them side by side. The CFPB’s Loan Estimate explainer walks through the form. Compare these lines on each:
- Interest rate and APR
- Lender credits or discount points
- Origination charges (Section A)
- Monthly mortgage insurance in the projected payments box
- Total cash to close
Large single-lender companies like Rocket and Movement offer real convenience, with streamlined digital applications and one place to manage everything. The structural difference is that you get that one lender’s rate sheet. Duane Buziak shops hundreds of wholesale lenders, so your file is priced across many sheets, and that can matter when your credit sits near a PMI pricing tier.
On locking, rates move daily, so ask each lender for the lock length and cost. A 30 to 45 day lock typically covers an appraisal and underwriting. Ask whether a float-down option exists and what triggers it. Lock when the payment works on paper and your closing timeline is realistic, not when you hope for a better day.
Mistake to avoid: choosing on rate alone. A lower rate paired with points, a higher origination charge, or pricier PMI can cost you more over your actual holding period than a slightly higher rate with lender credits. Rerun the Step 5 math for each offer.
Step 7: Close, Confirm the MIP Is Gone, and Handle the Old FHA Loan
After you lock, the lender orders the appraisal and underwriting begins. Expect to provide:
- Recent pay stubs and the last two years of W-2s
- Two months of bank statements
- Your current homeowners insurance declarations page
- Your latest mortgage statement
When the Closing Disclosure arrives, check that no FHA MIP or UFMIP appears anywhere. If PMI is listed, it should match the figure on your Loan Estimate. Question any gap before you sign.
The old servicer owes you your escrow balance back after the payoff, typically within a few weeks. Mark the date and follow up if it does not arrive. Keep making your FHA payment until the payoff is confirmed in writing.
If you closed with PMI, set a calendar reminder for when you reach 80% LTV, the point at which you can request removal. Under the Homeowners Protection Act, PMI terminates automatically at 78% of the original value on schedule. See consumerfinance.gov for the exact conditions, since a good payment history and no subordinate liens are generally required.
Common Questions About Dropping FHA Mortgage Insurance
How do I eliminate FHA mortgage insurance?
For most post-2013 loans with under 10% down, the practical route is refinancing into a conventional loan. At 80% LTV or lower you pay no mortgage insurance at all.
Does FHA mortgage insurance go away at 20% equity?
Generally not. On loans with case numbers after June 3, 2013 and under 10% down, MIP lasts the life of the loan. Check your case-number date and HUD’s current rules.
How much equity do I need to refinance out of FHA?
Twenty percent equity (80% LTV) removes mortgage insurance entirely. Between 3% and 20% equity you can still refinance conventionally, but PMI applies.
Will an FHA streamline refinance remove MIP?
No. A streamline keeps you in FHA, so mortgage insurance continues. In some cases it reduces the premium, but it does not eliminate it.
Can I refinance from FHA to conventional at a higher rate?
Yes, if the MIP savings outweigh the higher interest cost. Compare total monthly payments and your break-even month, not just the rate.
What credit score do I need to refinance from FHA to conventional?
Conventional loans have generally required about a 620 minimum, but higher scores get better pricing and cheaper PMI. Confirm current requirements in Fannie Mae’s eligibility matrix.
Do I get my upfront FHA premium back if I refinance to conventional?
Generally no. A partial refund is typically tied to refinancing into another FHA loan within a limited window. Verify your situation on hud.gov.
How long does it take to break even on an FHA to conventional refinance?
Divide closing costs by monthly savings. In the 80% LTV example above, $4,500 divided by $137.50 gives month 33. Your numbers will vary.
Does a soft-pull pre-qualification hurt my credit?
No. A soft pull does not affect your credit score, so you can review options with Duane Buziak before any hard inquiry happens at application.
Is Duane Buziak a mortgage broker or a mortgage lender?
Both. Duane Buziak is a broker who shops hundreds of wholesale lenders to find the best fit for your file, and he also has in-house and correspondent funding capability when that route makes sense.
Recheck Your MIP Term and Equity, Then Get a Free Soft-Pull Review
Before you do anything else, confirm your MIP duration from Step 2 and your current LTV from Step 3. If MIP is lifelong and your equity is near or above 20%, a conventional refinance may pay for itself within a few years. If your equity is thin, ask about timing, since a few more months of payments or appreciation can change the outcome.
Duane Buziak (NMLS #1110647) will run the break-even math on your actual loan and show you the real month your savings begin. Ready to discover how much you could save with Virginia’s top-ranked mortgage expert? Call (804) 212-8663 now for your free soft-pull rate analysis, no credit impact and no obligation, and find out if refinancing can lower your monthly payments or unlock your home’s equity.