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Conventional Refinance

If you own a home, you also know the value of making your home as affordable as possible. Refinancing with a conventional loan can lower your mortgage payments, pay off your mortgage faster, pay down high interest debt by rolling it into your mortgage, or help you borrow cash for other expenses.

Those who meet the qualification requirements for conventional refinance loans often get the most flexible loan options available.

As a result of refinancing, your total finance charges may be higher over the life of the loan.

What is a Conventional Refinance Loan?

After you purchase your home, you have the option to refinance your mortgage. When you refinance, you replace your current loan with a new one, which comes with various benefits depending on the refinance type.

There are two types of conventional refinance loans: a rate and term refinance and a cash-out refinance.

Whether the original loan you bought your house with was conventional, FHA, or VA, you may qualify for a conventional refinance. The qualification process is similar to qualifying for a conventional purchase loan. You need to meet standards set by government-sponsored Fannie Mae (the Federal National Mortgage Association) and Freddie Mac (the Federal Home Loan Mortgage Corporation). With these standards, comes flexible refinancing options.

Rate and term refinance

Lower your monthly mortgage payment by lowering your interest rate. This can also help you pay down your mortgage faster. If you have 20% equity in your home when you refinance you can save additional costs by eliminating mortgage insurance costs.

Cash-out refinance

Borrow cash from the equity you’ve built in your home. This loan replaces your current mortgage with a new larger mortgage, totaling more than you owe on the house. You then receive the difference in cash, which you can use for other expenses. The cash you borrow can be up to 80% of the home’s value.

Many homeowners use this option to pay down high-interest debt or cover other immediate expenses, such as home renovations or college tuition.

How to Get a Conventional Refinance Loan

To learn whether a conventional loan is the best option for refinancing your home, connect with us. To get you started, we’ve outlined the steps and documentation needed to help you understand the process.

The Refinancing Process

Connect with us and we’ll help you assess whether you’ll benefit from refinancing your current mortgage. For a conventional refinance, we’ll consider your current interest rate, credit score, a home appraisal, and the amount of equity you have in the home. 

Whether you’re interested in a rate and term or a cash-out refinance, we’ll explain your options to see what provides you with the most benefit. We’ll also discuss the new potential terms you qualify for, guiding you through each step until we can close your new refinance loan. 

Conventional Refinance Requirements to Meet

These are the common requirements often needed to qualify for a conventional refinance. If you have questions about these requirements, we’re here to help.

  • In most cases it’s best to have a credit score of 620 or higher. With higher credit scores often comes better interest rates.
  • Through underwriting evaluation, you’ll need documentation of consistent income with a Debt-to-Income ratio at or below 50%. This ratio shows how much of your monthly income goes to paying your debt.
  • Along with income information you need to share employment verification and history.
  • A Loan-to-Value ratio of 80% or less, meaning you’ve paid 20% equity into the home. This is not always required but it can eliminate Private Mortgage Insurance (PMI) and allow you to borrow the most cash.

Conventional Refinance FAQs

Your home is a major investment. It’s ok to have questions about refinancing it. We’ve compiled answers to the frequently asked ones, but don’t hesitate to ask more.

How soon can I refinance my current loan with a conventional refinance loan?

In most cases, if your name is on the title and you’ve paid on your current mortgage for at least six months, you’ll be able to refinance with a conventional loan.

This is commonly required for those with current conventional or VA loans. Those who purchased their house with an FHA loan may need to wait up to a year to do a conventional cash-out refinance.

How much equity do I need to refinance?

This depends on the type of refinance you want and the benefits you’re looking for. It’s best if you have at least 20% equity in your home for a rate and term refinance because it allows you to eliminate paying Private Mortgage Insurance (PMI). This amount of equity is often required for a cash-out refinance.

If you have less than 20% equity but have good credit, you may still benefit from refinancing, although you may need to continue paying PMI and your interest rate may not be as low as possible.

Do I need a home appraisal to refinance with a conventional loan?

A conventional refinance goes through many of the same steps required to close a conventional purchase loan. Similar to when you purchased your house, you will need another home appraisal for a conventional refinance so that we can understand the value of the house.

Once the value is determined, we can finalize the details of your loan to determine how much your monthly payments will be reduced with a rate and term refinance or how much cash you can borrow with a cash-out refinance.

What is the difference between a conventional refinance and a VA IRRRL or FHA Streamline refinance?

A conventional refinance can be done from various types of purchase loans, including an  FHA or VA loan. It provides broader options for rate and term refinances or cash-out refinances. However it also requires more documentation, more time, and a higher credit score for approval.

The FHA Streamline refinance is only available to those who currently have an FHA loan. The same is true for the VA IRRRL only being available to those with a VA loan.  Because these both use a streamlined process, they make lowering your interest rate and monthly payments fast and simple. Simplicity comes with fewer qualification requirements but also fewer refinance options.

Are there closing costs with a conventional refinance?

When you close your conventional loan to refinance a house, you’ll need to account for several costs, both upfront and those included in your ongoing monthly payment. These will be clearly outlined as your loan is processed and before you close.

Closing costs cover expenses such as loan origination fees and an appraisal. These typically range from 2-4% of your total loan amount.