FHA refinance rates

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An FHA refinance is the process of replacing your current mortgage with a new loan. This might mean swapping an existing FHA loan for another FHA loan or other type of mortgage, or switching a non-FHA loan to an FHA loan. Ideally, the refinance gets you a lower interest rate, shorter loan term or both. You can also refinance to take cash out from your equity.

FHA refinance loans can be a flexible option for those with poor credit, including borrowers with a FICO score as low as 580. An FHA streamline refinance, specifically, might be an option for a borrower who needs to bypass an appraisal, credit check or income verification.

The cost of an FHA refinance depends on a variety of factors, including any lender or third-party fees you'll need to pay, such as loan origination fees or appraisal fees. You'll also have to pay closing costs on your new loan, as well as an upfront mortgage insurance premium unique to FHA loans. Closing costs vary based on factors like your credit score, DTI ratio and interest rate.

Generally, refinancing is worth doing if you can get a lower interest rate and plan to stay in your home long enough to recoup the closing costs. At this point, you’ll begin saving money on your mortgage. If you refinance to a shorter loan term along with a lower rate, you’ll save on interest overall, as well.

With an FHA refinance, however, the mortgage insurance premiums eat into your savings. It’s important to do the math carefully to determine whether you’d save as much as you’re hoping to.

Refinancing an FHA loan can temporarily hurt your credit score for a few reasons. For one, any credit pull lowers your score a bit. When you shop around for an FHA refinance loan, get rate quotes within a 45-day window to minimize the hit to your score. Secondly, a refinance is a new loan that pays off the old one. That means it’ll go on your credit report and impact the length of your credit history, which factors into your score. If the new loan is bigger because you took cash out, that also increases your debt load and affects your score.

All FHA loans, including FHA refinances, require the borrower to pay mortgage insurance premiums. For an FHA simple or streamline refinance, this includes an upfront premium of 1.75 percent of the loan amount plus an annual premium of 0.55 percent. Depending on your loan-to-value (LTV) ratio, you’ll pay this annual premium for the entire loan term or 11 years.

FHA loans are a great product for first-time buyers, but the mortgage insurance premium on an FHA loan is steep. For that reason, borrowers often look to refinance out of their FHA loans and into conventional loans. Here’s a complete guide to removing FHA mortgage insurance.