To refinance a conventional mortgage into an FHA loan, follow these steps: 1) Verify eligibility: Ensure your credit score meets FHA requirements (typically 580+), property appraises for the loan amount, and conform to FHA income limits. 2) Compare loan terms: Calculate total costs (including mortgage insurance premiums) to assess if FHA’s lower down payment offsets higher fees. 3) Apply with an FHA-approved lender: Submit documentation (pay stubs, tax returns, bank statements) and undergo underwriting. 4) Close the refinance: Finalize the loan with updated terms, paying closing costs (3-6% of the loan amount). 5) Maintain FHA requirements: Continue paying mortgage insurance (0.5-1.5% of the loan amount annually) and meet annual property inspections if required.

FHA loans offer flexibility for borrowers with lower equity or credit scores compared to conventional loans. In 2023, FHA loans allowed down payments as low as 3.5% for credit scores above 580, reducing upfront costs for refinancers. However, mortgage insurance premiums (MIP) increase the long-term cost, making this option advantageous only if the borrower plans to stay in the home long-term. Data from the U.S. Department of Housing and Urban Development (HUD) shows that 65% of refinancers opt for FHA loans to leverage lower down payments, though 30% face higher interest rates than conventional loans (Federal Housing Administration, 2023). Additionally, FHA loans require a 0.5% upfront MIP and 0.55% annual premium, totaling higher costs over time versus conventional loans without insurance. For example, a $300,000 loan with a 4% interest rate would pay $1,500 in upfront MIP and $1,650 annually, compared to a conventional loan’s $0 insurance but potentially higher interest rates (Mortgage Bankers Association, 2023). Borrowers should weigh short-term savings against long-term fees and consider hybrid options, such as FHA Streamline Refinances, which simplify the process for existing FHA borrowers. Ultimately, converting to an FHA loan suits those prioritizing immediate affordability over minimal long-term costs.