Considering Refinancing? How to Decide Between a Conventional and FHA Loan

13 February 2026

Refinancing your home can feel like navigating a maze—so many options, so many decisions! One of the biggest choices you'll face is whether to go with a Conventional loan or an FHA loan when refinancing. Both have their benefits, but how do you decide which one fits your situation best?

Let’s break it down in the simplest way possible—no confusing jargon, just straightforward answers to help you make the best decision.

What is Refinancing, and Why Does It Matter?

Before we jump into Conventional vs. FHA, let’s quickly address why refinancing is even worth considering.

Refinancing your mortgage means replacing your current loan with a new one, ideally with better terms. Homeowners refinance for a few reasons:

- To lower their interest rate and save money
- To reduce monthly payments
- To switch from an adjustable-rate loan to a fixed-rate loan (or vice versa)
- To tap into home equity for major expenses
- To get rid of mortgage insurance

Now that we’ve covered the basics, let’s dive into the big decision—should you go with a Conventional or an FHA loan for your refinance?

Understanding Conventional Loans

A Conventional loan is a mortgage backed by private lenders, not the government. These loans typically require higher credit scores and solid financial history, but they offer great perks for those who qualify.

Pros of a Conventional Refinance

✅ No Mortgage Insurance (With Enough Equity) – If you have at least 20% equity in your home, you can refinance with a Conventional loan and ditch private mortgage insurance (PMI). That’s a huge savings!

✅ Lower Interest Rates for Good Credit – If your credit score is strong (typically 620 or higher), you’ll likely qualify for competitive interest rates.

✅ Flexible Loan Terms – Conventional loans usually offer more flexibility in choosing loan terms, whether it’s 10, 15, or 30 years.

✅ Better for Long-Term Savings – While upfront costs might be higher, Conventional loans can save you more in the long run, especially if you qualify for lower rates.

Cons of a Conventional Refinance

❌ Stricter Credit Requirements – If your credit score isn’t great, qualifying for a Conventional refinance can be tough. The higher your credit score, the better the deal you’ll get.

❌ Higher Upfront Costs – While PMI can be avoided, Conventional loans often come with higher closing costs than FHA loans.

Understanding FHA Loans

Now, let’s talk about FHA refinancing. FHA loans are backed by the Federal Housing Administration, which makes them a great option for homeowners with lower credit scores or smaller down payments.

Pros of an FHA Refinance

✅ Easier to Qualify For – If your credit score isn’t perfect, FHA loans are more forgiving. Borrowers with scores as low as 500-580 may qualify.

✅ Low Down Payments / Equity Requirements – FHA refinancing often allows borrowers to refinance with as little as 3.5% equity.

✅ Streamline Refinance Option – If you already have an FHA loan, you might qualify for an FHA Streamline Refinance, which means less paperwork and lower requirements.

Cons of an FHA Refinance

❌ Mortgage Insurance is Required – Unlike Conventional loans, FHA loans require mortgage insurance (MIP), no matter how much equity you have. This adds an ongoing expense to your mortgage.

❌ Loan Limits Apply – FHA loans have borrowing limits based on local housing prices, which can be a problem if you’re refinancing a high-value home.

❌ Not Ideal for High Credit Score Borrowers – If you have excellent credit, you’ll likely get better rates and terms with a Conventional refinance.

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

To make this even simpler, here’s a quick comparison:

| Feature | Conventional Loan | FHA Loan |
|------------------|----------------|---------|
| Credit Score Requirement | 620+ | 500-580 |
| Mortgage Insurance | Only if <20% equity | Required |
| Interest Rates | Lower for good credit | Can be higher |
| Equity Requirement | 20% to avoid PMI | 3.5% minimum |
| Loan Limits | Higher limits | FHA limits apply |
| Best For | Good credit, long-term savings | Lower credit, easier approval |

How to Decide Which Loan is Right for You

Now that we’ve covered the basics, let’s answer the real question—which one should you go with? Here’s how to decide:

Choose a Conventional Loan If…

✔️ You have good credit (620 or higher)
✔️ You have at least 20% home equity
✔️ You want to avoid mortgage insurance
✔️ You’re looking for long-term savings

Choose an FHA Loan If…

✔️ Your credit score is below 620
✔️ You don’t have much equity in your home
✔️ You need easier qualification requirements
✔️ You’re okay with paying mortgage insurance

Still unsure? Think of it like this:
- Conventional loans are like a VIP pass—better terms, but only if you meet the criteria.
- FHA loans are the all-access pass—easier to get, but with extra fees attached.

Other Factors to Consider

Beyond the basics, here are a few other things to think about before making your final decision:

Your Financial Goals

- Are you refinancing to lower your monthly payments or to save money long-term?
- If you need a lower payment ASAP, FHA may be a better short-term choice. If you’re thinking long-term, Conventional might save you more.

Closing Costs

- FHA loans tend to have lower closing costs, but you’ll be paying mortgage insurance.
- Conventional loans might have higher upfront costs but lower long-term expenses.

How Long You Plan to Stay in Your Home

- If you’re planning to move in a few years, an FHA refinance might be easier and more flexible.
- If this is your forever home, a Conventional refinance will likely give you better long-term savings.

Final Thoughts

Refinancing is a big decision, but it doesn’t have to be overwhelming. Hopefully, this guide has made things a little clearer for you! At the end of the day, the right choice comes down to your credit score, home equity, and financial goals.

- Good credit and equity? Go Conventional.
- Lower credit and less equity? FHA might be the way to go.

Whatever you decide, make sure to shop around for the best rates, factor in closing costs, and think about the future. A little planning now can save you thousands in the long run!

Have questions? Drop them in the comments—we’re happy to help!