Homeowners know the importance of having a mortgage that works for you—not against you.
A conventional loan refinance could be a solution if you’re facing financial challenges with your mortgage, need to tap into your home’s equity, or want to lower your interest rate.
Conventional loan refinancing offers borrowers more flexible options.
This guide covers everything you need to know about conventional loan refinancing, from rates and eligibility to application steps.
Get started with a conventional refinance.
What is a conventional loan refinance?
A conventional loan refinance replaces your current mortgage with a new one, often on better terms or with a more favorable interest rate.
A refinance will assess where you’re currently at with your finances and your home’s value to determine what you qualify for.
Why should you refinance with a conventional loan?
Among other benefits, conventional loan refinancing can lead to significant savings for eligible homeowners.
Lower interest rates
Refinancing your current mortgage can secure a lower interest rate, saving you thousands over the loan’s lifetime.
Refinance rates for conventional loans vary depending on factors, including:
- Loan term
To get the best rate, improve your financial profile and compare offers from multiple lenders.
Eliminate private mortgage insurance (PMI)
If you’re currently paying PMI because your down payment was less than 20%, refinancing could help eliminate this additional cost once your home’s equity reaches 20%.
Switch from an ARM (adjustable-rate mortgage) to a fixed-rate mortgage
Refinancing your ARM to a fixed-rate mortgage helps lock in a stable interest rate and avoid future increases.
Access home equity
Cash-out refinancing lets you borrow against your home’s equity, providing funds for large expenses or debt consolidation.
Shorten your loan term
Refinancing your mortgage to one with a shorter term can help you pay off your loan faster and reduce the total interest paid—though it may increase monthly payments.
You’ve significantly improved your home’s value
Since purchasing your home, any significant home improvements you’ve made could improve its overall value, allowing you to refinance for more.
Examples of valuable improvements include adding square footage or upgrading essential systems such as plumbing or roofing.
Higher property value can improve your loan-to-value (LTV) ratio, which may help you qualify for better refinancing terms.
Additionally, increased home equity is beneficial if you’re considering a cash-out refinance for future home improvements or other projects.
The break-even point makes sense for you
When deciding whether to refinance, it’s important to calculate your break-even point—the time it takes to recover the costs of refinancing through lower monthly payments.
For example, if your closing costs are $5,000 and refinancing saves you $200 per month, it will take 25 months to recoup those costs.
Conventional loan refinance requirements
Refinance requirements will vary by lender; however, there are general guidelines that you can expect when refinancing.
Credit score
Most lenders expect a minimum credit score of 620 for conventional refinancing. However, having a higher score can open up opportunities for more attractive interest rates.
Home equity
To refinance, you generally need at least 20% equity in your home to avoid PMI. If you have less than 20%, refinancing may still be possible but will likely require continued PMI payments.
Seasoning
Many lenders, including Lendistry Home Loans, require homeowners to be up-to-date on their mortgage, having made their monthly payments on time for the previous six months.
Debt-to-income (DTI) ratio
Lenders typically prefer a debt-to-income (DTI) ratio of 43% or lower, though higher ratios may be considered if the borrower has strong financial qualifications.
Income and employment verification
You must provide proof of consistent income and employment, such as W2s, pay stubs, or tax returns.
Self-employed borrowers may need additional documentation and should discuss their options with their lenders.
Loan-to-value (LTV) ratio
The loan-to-value ratio refers to the amount you’re borrowing compared to the property’s value. A lower LTV ratio (typically below 80%) can help you qualify for better rates.
The conventional loan refinance process
Refinancing a conventional loan follows a process similar to obtaining your initial mortgage.
Determine your goals
Decide whether you want to lower your interest rate, reduce payments, or access equity. These goals will guide your refinancing choices.
Shop for lenders
Be sure to compare rates and terms from various lenders by requesting loan estimates from each one. Doing so will help you identify the most competitive offer available.
In addition to competitive rates and terms, Lendistry Home Loans offers unparalleled support to its borrowers from all walks of life. Our fully online process provides a simple and accessible refinance experience.
Factors such as convenience and customer service should also be considered when choosing your lender.
Submit your application
Provide necessary financial documentation, including pay stubs and tax returns, when applying for a refinance. Be as responsive as possible when your lender requests information to streamline the process.
Appraisal and underwriting
Most lenders will typically require a home appraisal to assess its current value.
Following the appraisal, the underwriting process begins, during which your financial information and application are thoroughly reviewed.
Close the loan
If approved, you’ll close on the new loan, paying closing costs typically ranging from 2% to 5% of the loan amount. The original mortgage will be paid off, and you’ll begin payments on the refinanced loan.
Understanding closing costs for conventional loan refinances
When refinancing a conventional loan, it’s important to account for closing costs, which typically range between 2% and 5% of the loan amount.
Refinance closing costs can include:
- Appraisal fees
- Title insurance
- Loan origination fees
- Administrative expenses
While these fees are part of the refinancing process, you may have the option to roll them into the loan or pay them upfront at closing.
Be sure to factor in these costs when determining the total savings from refinancing.
In some cases, if the closing costs outweigh the benefits of a lower interest rate, there may be a better time to refinance.
Refinancing with a conventional loan unlocks savings
Refinancing your conventional loan can lead to reduced monthly payments, elimination of PMI, or access to home equity.
Whether you’re looking to save on interest or pay off your loan faster, conventional loan refinancing offers a flexible solution.
Ready to explore refinancing options? Lendistry Home Loans can guide you through the process until your loan is finalized and help you achieve your financial goals.
Start your conventional refinance with Lendistry Home Loans today.