Conventional Refinance
Refinancing can make your home more affordable and help you reach other financial goals. Refinancing conventionally lets you lower your monthly mortgage payment, pay off your mortgage faster, or pay off other high-interest debt.
A Conventional Refinance has many benefits
Babak can help you decide if refinancing is right for you. You can make your house more affordable with a conventional refinance loan when you choose from a variety of financial goals. Depending on current interest rates and your credit score, now might be the right time to refinance.
- Choose Your Refinance Goal
- Get cash from your home equity to pay other bills
- Reduce your mortgage payment
- Getting your mortgage paid off faster
- How a Conventional Refinance Loan Works
There are two types of conventional refinance loans — a rate and term refinance and a cash-out refinance. Each one helps you reach a specific financial goal, while their qualification requirements and options are similar.
Conventional Rate and Term Refinance
Just like conventional purchase loans are the most popular among homebuyers, conventional rate and term refinance loans are the most popular among homeowners. You can refinance into this loan from another loan type as well, like an FHA or VA loan. Basically, a rate and term refinance can lower your mortgage payment by lowering your interest rate. Also, if you have 22% equity and 24 months of payment history, you can get rid of mortgage insurance. You can shorten your term length to pay down your mortgage faster, which may also lower your interest rate.
Conventional Cash-Out Refinance
ADVANTAGES OF A CONVENTIONAL REFINANCE LOAN
Reduce your monthly payment
Reduce your interest rate
Term options that are flexible
You can borrow from the equity in your house
Get your debts consolidated
Getting rid of mortgage insurance
Get Approved for a Conventional Refinance Loan
Using either of these conventional refinance options, you can get a new mortgage and choose from these options:
- A fixed interest rate for the life of your loan
- Term that makes your payments and total loan amount affordable to you, like 15-, 25-, or 30-years
To qualify for a refinance, you’ll need the following:
- Evidence of consistent income
- Checking employment history and verification
- A debt-to-income ratio of 50% or less qualifies for automated underwriting
- 80% loan-to-value means you have at least 20% equity in your home
- Private mortgage insurance is required for loans with less than 20% equity
Be aware that a conventional refinance also comes with closing costs, as well as new loan terms you should know about, such as changes to mortgage insurance or prepayment penalties.
Is a Conventional Refinance Right for You?
A: Using a conventional cash-out refinance, you can borrow money from your home equity to use however you want. Cash-out refinances are commonly used to pay down high-interest debt such as credit cards. Another option is to reinvest the cash into the home and make improvements. The money can also be used to pay college tuition, invest, or put down on another house.
A: Paying down your mortgage gives you equity in your home, so you really own a larger chunk of it. The amount of equity you have impacts your ability to refinance. Calculating your loan-to-value (LTV) ratio can help you figure out your equity. It’s how much you owe on your mortgage compared to the value of your house. LTV ratios should be 80% or higher, which means you have 20% home equity. So you can get the most out of your conventional refinance. You might be able to refinance with less equity, but at a higher interest rate, and you’ll need to keep paying mortgage insurance. Refinancing options such as FHA and VA may require less equity or none. FHA refinances, for example, require you to pay mortgage insurance premiums.
A: There are extra fees and costs when you refinance your mortgage. Closing costs include things like loan origination fees. Typically, they’re between 2% and 4% of your loan. If you’re thinking about a rate and term refinance, see if the savings will outweigh the closing costs. You can figure this out by finding out how long it will take you to make back the money you spent at closing, plus the money you’re saving each month.