It makes sense to refinance your FHA loan with a conventional loan if you want to stop paying for mortgage insurance premium, or MIP. MIP is the annual and monthly fees you pay for when opting to put a low down payment. Homeowners who put a 3.5 percent down payment on their FHA loan expect to pay MIP until they finish repaying the loan.
If you will take out a mortgage as a first-time homebuyer, lenders want to make sure that you’re able to dutifully repay the whole amount of the loan you’ll take, plus interest, until the end of the term. Because lenders take a considerable risk when lending money, they find it ideal to require borrowers to make an upfront down payment of 20 percent. If you think a 20 percent down payment is overwhelming, lenders may allow you to put a low down payment, but they will require you to pay a Private Mortgage Insurance or PMI. This could be a viable option if you want to fulfill your homeownership dreams.