
Sign up & start saving!
Get our weekly newsletter for the latest in money news, credit card offers + more ways to save
Finder is committed to editorial independence. While we receive compensation when you click links to partners, they do not influence our content.
To determine if refinancing your conventional loan is worth the costs, you’ll need to weigh the fees against your potential future savings. And refinancing isn’t for everyone — make sure your credit is where it needs to be and compare your options before moving forward.
Refinancing your conventional loan starts with shopping around for the lowest rates and fees. Once you find a lender who meets your needs, you’ll then:
If you’re looking to lower your monthly payments or you’re trying to pay off your mortgage faster, refinancing your conventional loan is certainly an option. And depending on how your financial needs change over time, you can refinance as many times as you need.
Refinance your conventional loan with one of three options:
Borrowers can refinance into another conventional loan and get a new interest rate and loan term.
Refinance to convert your conventional loan into an FHA loan with a new mortgage rate and loan term.
This could be a good option for borrowers with a less than stellar credit score.
Use your home’s equity to get a loan for more than you owe and take the difference in cash. You can use the lump sum to pay for large expenses like home improvements or to consolidate debt.
Here are the eligibility requirements for each refinancing program:
Conventional refinance | FHA rate-and-term refinance | Conventional cash-out refinance | FHA cash-out refinance | |
---|---|---|---|---|
Minimum equity | 3% | 2.25% | 20% | 20% |
Maximum LTV | 97% | 97.75% | 80% | 80% |
Minimum credit score | 620, though 740 or higher is best | 580 | 620, though lenders prefer 640 | 500, though lenders prefer 580 |
Maximum DTI | 36%, but up to 45% with credit score and reserve requirements | 45%, up to 50% with compensating factors | 45%, higher with six months reserves | 43%, higher with compensating factors like a high credit score |
Borrowers can drop private mortgage insurance (PMI) on conventional loans once they have at least 20% equity in the home. On the other hand, FHA loans require mortgage insurance for the entire loan term. So if you’re refinancing into an FHA loan, you’ll need to weigh the extra costs of mortgage insurance, which is 1.75% of the loan amount.
Whether you’re eyeing a lower interest rate or need to tap into your home equity, make sure refinancing makes financial sense.
Lenders set their own policies and terms for refinancing.
While conventional loans don’t typically have a waiting period, most lenders won’t refinance a mortgage that they’ve issued in the last four to six months. If you’re set on refinancing and fall within that time range, you may have to look for a new lender.
FHA rate-and-term refinance loans require you to own the property for 12 months if you have a loan-to-value (LTV) ratio of 97.75%. If you’ve owned the home for less than 12 months, you’ll need an LTV of 85%.
Keep in mind you’ll also need to meet all eligibility requirements. And since closing costs can be expensive, it may not make sense to refinance frequently.
There are several benefits and drawbacks to refinancing.
Depending on your goals, refinancing your conventional loan can lower your monthly payments or help you pay off your mortgage in less time. But refinancing can cost you 2% to 5% of the loan balance in closing costs. Use our mortgage refinance calculator to see how much you might stand to save.
Check out these Fundrise competitors.
Learn about what will happen to your home loan when you die and how to avoid any nasty situations with some pre-planning.
Check out our guide on the differences between mortgage brokers and bank loan officers. See which one will suit your needs.
From supply and demand through to location, facilities and planned infrastructure projects, there are plenty of factors that can influence property value.
Some lenders will approve a home loan even though you’re not receiving a permanent income. However, you’ll need to undergo some assessments.
Which is right for you?
A 101 guide covering the types of mortgage loans every homebuyer should know.
With $1,400 or more coming to most Americans’ wallets, here’s how you can fund your car down payment and save money on your loan.
Everything you need to know about the tax advantages, fees and limitations of individual retirement accounts.
Low interest rates set this connection service apart.