Standard & Streamline – Minimum 680
No Restrictions – Debt to income ratio cannot exceed 43 percent
Min. 20% or loan-to-value of 80%
Cash out available
Fixed Rate, Variable Rate or Adjustable Rate
Can convert from any program
Benefits of a Conventional Refinance
There are many benefits of a Conventional Refinance. If the homeowner is looking to lower their monthly payments, there are several options to have this done. If the credit of a homeowner improves and if there additional funds, a refinance can definitely lower the monthly mortgage payments directly by being offered a better interest rate. A lower interest rate is the easiest way to lower monthly payments for a homeowner, however there are other options. Another option is for a homeowner to use either the equity of the home, or provide additional outside money as a cash-in down payment towards the home. Be aware that a homeowner can use the Conventional Refinance option even if they did not use the Conventional Loan program for the original home loan. This means that if the homeowner decides to use the USDA Loan program, they can then refinance the home through the Conventional Loan option. This refinance option may or may not have out of pocket costs for the homeowner depending on the equity of the home. For all Conventional Refinances, a new appraisal will be needed.
Unfortunately, Conventional Refinances do not have a “Streamline” option at this time. However, this does not mean Conventional Refinances do not have their perks. Conventional Refinance options are not limited to the primary residence of a homeowner like FHA Refinance options are, nor are they subject to income eligibility requirements like the USDA Refinance options. Additionally, the Conventional Refinance option, provided the borrower has better credit, good equity in the home, and income to qualify, may even result in the borrower pulling out large amounts of cash for other purposes.
Qualifications for Refinancing with a Conventional Loan
In order to qualify for a Conventional Refinance, the borrower needs to have good credit, a proper source of income and have obtained between at least 10 percent equity in the property. As a reminder, the original mortgage does not need to be a Conventional Loan in order for a Conventional Refinance option to be available. The Conventional Refinance options do allow cash out options, without any limits. For the Conventional Refinance option, a missed payment or two may be acceptable by the lender as long as the borrower provides a very detailed letter of explanation. This letter of explanation must include that the late payments were out of the borrower’s control and that late payments would not happen again. Additionally, in order for a borrower to be able to cash out on the equity from a Conventional Refinance, their credit, income, and the equity of the home must be at a certain threshold. This exact amount varies with the type of loan being refinanced and the interest on the new loan.
The Conventional Refinance option is very similar to the actual Conventional Loan process. A borrower looking to apply for the Conventional Refinance can expect the process for this loan to have a bit less information needed than it’s loan program counterpart. A borrower can also expect the process for this loan to have a lot of similarities to a FHA Refinance option. Unlike USDA Refinances, the borrower can opt to perform a Conventional Refinance on any primary residence, no matter what the original loan program was.
For the Conventional Refinance program, only the borrowers that will appear on the mortgage must submit asset and income documentation. Very similar to FHA and USDA Refinance options, the underwriters use bank statements and pay stubs to verify the borrower’s assets and income. Any large deposits within 1 percent of the purchase price will need to be sourced with an accompanying letter of explanation, as this is required for anti-money laundering laws. This information is cross-referenced with a verification of employment that is filled out by the employer, most recent 2 years of W-2 forms or 1099 Forms and tax returns. All of these items will be needed by the underwriter to clear asset and income conditions.
An appraisal report is a report that will be needed for Conventional Refinance options. As a reminder, it is purchased by the borrower to show the value of a property. An appraisal report is important because it gives the underwriter a sense of value that may then be compared to the purchase price, as well as an idea of the overall condition of the home. If the home is appraised higher than the current remaining loan amount, this means that the home has gained equity. Keep in mind that an appraisal is not a home inspection. An appraisal report can cost anywhere between $300 and $600 dollars. Unlike USDA and FHA appraisals, if there are repairs that are noted by the appraiser, then those repairs do not need to be done, unless the buyer wishes to do them.