When you refinance your mortgage, you have to take out a new loan to pay off the old one. Reasons for doing this vary, but often lower interest rates motivate homeowners to refinance to save money on interest. Some homeowners want a shorter term to pay off the mortgage faster. Refinance rules are different and depend on the type of loan you have.
FHA loans, which are backed by the Federal Housing Administration, are offered to buyers who may not qualify for a convention loan. Such loans require little to no down payment and come with more lenient requirements for debt-to-income ratios. FHA offers two refinancing options which are streamline refinancing and cash-out refinancing.
Streamline financing is the easiest option for borrowers since it doesn’t require an appraisal or credit check. It serves borrowers who are currently underwater on their mortgage, which means they owe more than the home is worth. To qualify for streamline financing, the borrower must have a loan originated through FHA and they must be current on the loan. The streamline program can be used to change a variable interest rate to a fixed rate or to lower monthly payments.
To qualify for a cash-out refinance, a borrower must have at least 20 percent equity in the home, a credit score of at least 580, a debt-to-income ratio of less than 43 percent and the borrower must be current on the loan over the last year.
Just like FHA loans that are backed by the government, so are USDA loans. And similar to FHA loans, USDA offers streamline refinance. To qualify for streamline refinance, the borrower must be current on the loan for the past 180 days. Additionally, the loan has to be at least one year old. Borrowers cannot use this type of loan to get cash out.
A jumbo loan can be refinanced at any time. Because jumbo loans are riskier in nature than other loans, it may be difficult to find a lender willing to do the refinance. Borrowers who are attempting to refinance a jumbo loan are held to strict standards just as they were when they obtained the original jumbo loan. To qualify, borrowers must have a credit score no lower than 700 and a debt-to-income ratio less than 36 percent, an 80/20 loan-to-value ratio and enough cash reserves to cover the monthly mortgage payment.
There is no specific timeline for refinancing a conventional loan. The terms of your current loan, your overall financial picture and your reason for obtaining a refinance are all factors in determining if your refinance will be approved. The most common reasons for refinancing a conventional loan are:
- To secure a lower interest rate
- To add or remove a name from the loan
- To shorten the term of the loan
- To use the equity in your home to obtain cash
Seek the Help of Mortgage Professionals
If you’re considering a refinance, no matter the type of loan you have, let the mortgage professionals at Potempa Team help you. We are here to answer your questions and get the best refinance deal possible that will fit your budget and lifestyle. Contact us today to see how we can help you.