Conventional Loan Refinance

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Are you thinking about refinancing your home loan? Did you know that in today’s homeowners market the conventional refinance is the preferred loan for a lot of homeowners in the United States? It is worth noting that a conventional mortgage (fixed rate) can be assured with loan terms from thirty years down to an eight-year option.

You will be pleased to know that you can qualify for conventional refinance for any loan amount between $25,000 and $510,400. Note that conventional refinancing is convenient as it helps mortgage owners reduce their rates and even change their terms. If you are making more

money or your credit has improved, then conventional loan refinance can be beneficial for you.You should know that conventional refinance is one of the several loan products that you can use in order to buy or refinance a house. However, it is worth noting that conventional loan refinance can be a bit harder to qualify for compared to other kinds of home loans. The good news is that conventional loan refinance can also provide you with some significant benefits if you are eligible.Did you know that conventional refinance products can be an excellent choice for you if you have good credit? They are also an ideal choice if you would like to save on some long-term costs and want to avoid mortgage insurance.

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What is Conventional Loan Refinance?

We can define conventional refinance as home loans that are not insured or backed by a government agency (such as VA, FHA, and USDA loans). Did you know that conventional loan refinance can be either conforming or non-conforming? You can use a conventional refinance loan to replace or refinance an existing mortgage. We can divide this kind of refinance into two main categories. These are rate and term or cash-out. It is worth noting that you can use rate and term refinance in order to secure a lower rate or even change the length of the current loan term. Note that this program is useful when interest rates fall below the interest rate of your existing mortgage rate.

Conventional Refinance

You may use a conventional refinance in order to:.

Refinance an FHA loan.
Cancel FHA mortgage insurance.
Refinance another conventional loan.
Consolidate your first mortgage and second mortgage.
Take some cash out of your home’s equity.

Similar to conventional loans note that conventional loan refinance offers you fantastic rates, greater flexibility, and lower costs than other programs, and this can help you, especially in the long run.Conforming loans are a type of conventional loan refinance and have a loan balance under the “conforming” limit. The limit is $510,400 in most parts of the US

.Did you know that you will usually need a credit score of 620 (at least) in order to qualify for conventional refinance? However, it is worth noting that a credit score that is above 740 can help you secure the best rate. Also, note that depending on the amount you are borrowing and your financial status, you might be able to make a down payment that is as low as 3 percent.

On the other hand, non-conforming conventional loans typically have a balance that is a little higher than this limit. Sometimes, these loans are also known as jumbo loans. This is because they tend to have a higher balance. Also, they are not eligible for purchase by Fannie Mae or Freddie Mac.

Keep. in mind that unlike many government-backed home loans, such as VA, FHA, and USDA mortgages, conventional loan refinance does not require a funding fee that is usually paid at settlement date or financed with the loan amount. Also, you should know that most loan officers urge prospective borrowers to refinance to a conventional mortgage. This is because of the funding fee cost and mortgage insurance premium.

Why should You Opt for Conventional Refinance Loan?

The benefit of using conventional refinance is that rates are relatively low, and there isn’t any upfront or monthly mortgage insurance fee required with 20 percent equity. And this is the reason homeowners are now turning to this type of loan as a low-cost and simple alternative to other types of refinance.

Cash-Out Options

Did you know that in a cash-out refinance, homeowners increase their loan balance by at least five percent? The extra amount borrowed is usually paid as cash at the closing date to the borrower. In some cases, a cash-out refinance is used for consolidating debt for the borrower.

Rate-and-Term Refinance Option

On the other hand, a rate-and-term refinance loan changes the rate or period of a loan. However, keep in mind that the amount of your loan will generally remain the same. And this will lower your monthly mortgage payments, which is excellent.

If you refinance your current loan, the total finance charges might be higher over the duration of the loan. If you are having trouble meeting monthly payment deadlines on your mortgage, then a rate-and-term refinance loan will help you lower your total monthly expenditures.

No-cost Refinance Option

Note that the no-cost refinance option helps you refinance without having to pay the fee and costs of refinancing at closing. Also, it is worth noting that the total amount of the loan includes these costs. This is great as it allows you to spread out the loan payments over the life of your loan.

Types of Conventional Loan Refinance

Did you know that there are two main types of conventional refinance loans? These are conforming and non-conforming.

Conforming Refinance Loan

Note that to be considered a conforming refinance loan, the loan has to meet all the guidelines stipulated by Fannie Mae and Freddie Mac. Fannie Mae (Federal National Mortgage Association) and Freddie Mac (Federal Home Loan Mortgage Corporation) are government-backed enterprises that buy mortgages from lenders.

Conforming refinance loans are loans that stick to the standards and guidelines set by Fannie Mae and Freddie Mac, which include maximum loan amounts. It is worth noting that conforming loan limits are usually similar across most counties in the US. However, there are also a few high-cost areas where the loan limit is a little higher.

Did you know that one of Freddie Mac and Fannie Mae’s most important rules is the loan limit? For instance, in 2018, the baseline limit for single-unit properties was

$453,100. Note that it is called baseline because the maximum amount that you can borrow is adjusted on a yearly basis to match changes in housing prices.On the other hand, in some high-cost areas in the countries, the loan limit can increase to a maximum of $679,650. You should check with your lender in order to see what the conforming refinance loan limits are for your region or area.

Nonconforming Refinance Loan

Conventional refinance that exceeds the loan limit is known as non-conforming conventional loans. We can say that a non-conforming refinance loan is a conventional product not purchased by Freddie Mac or Fannie Mae. This is because it does not meet the loan amount requirements. So, lenders and private institutions fund non-conforming loans.

Advantages and Benefits of Conventional Loan Refinance?

You should know that no refinance loan is perfect for everyone. This is why you should know the benefits and disadvantages of different options before you choose.Here are some benefits you will get from a conventional refinance loan.

Lower Interest Rates

Did you know that a high credit score will help you qualify for a low interest rate? This is because your interest rate on conventional loan refinance is usually tied to your creditworthiness, among some other factors and variables.Also, note that although a low down payment may cause you to pay private mortgage insurance, you may also

request to have your insurance requirement removed as soon as your loan-to-value (LTV) ratio reaches 80 percent.On the other hand, the mortgage insurance premium for an FHA loan can stay on there for the remaining term of your loan.

Quicker Loan Underwriting

Another benefit of conventional refinance loans is that they require less paperwork, and you can obtain them more quickly compared to government-insured loans. It is worth noting that mortgage lenders can also approve conventional refinance loans without the usual delays incurred with government-backed and FHA loans. Also, keep in mind that with conventional refinance, sellers don’t face an exhaustive FHA inspection, which at times requires time-consuming and costly repairs.

Higher Loan Limits

Although conforming loans have limits, note that you can easily go higher with a jumbo conventional loan if you have to. You might not be able to get that type of flexibility with most government-insured loans.

No Program-specific Fees

While you may have to pay fees to the lender, keep in mind that conventional refinance loans do not have the extra program-specific costs that government-backed loans have.For example, did you know that for an FHA loan, you will have to pay a 1.75 percent upfront mortgage insurance premium? Similarly, many VA loans tend to have a

funding fee of about 1.4 percent to 2.3 percent, depending on your down payment.


Another benefit is that private mortgage lenders usually have more flexibility with conventional refinance loans than they do with various government-backed loans. This is mainly because they do not have to follow the guidelines and rules set by those governmental agencies.

How can You use Conventional Refinance?

Conventional Refinance Loan for Non-owner Occupied Residences

Did you know that one flexibility that conventional loan refinance offers is around occupancy type? It is worth noting that you can only use government-insured loans, such as FHA, and VA mortgage, for a primary residence, like the home you live in. On the other hand, you can use conventional refinance loans for a primary residence and second home. You can even use it for investment (rental) property.

Cancel USDA or FHA Mortgage Insurance

You may know that many first-time homebuyers in the US choose a government-backed mortgage in order to get into their first home. And that is the right choice for many. This is because government-sponsored loan programs are usually flexible on down payments and credit scores. However, it is worth noting that they come at a cost.For example, FHA loans come with a monthly mortgage insurance premium of about $71 a month per $100,000 borrowed. Similarly, USDA home loans also come with a monthly fee, usually $29 per month per $100,000 of the loan amount.

While these fees are usually well worth homeownership, homeowners do not like to pay the fees for life, especially if they have sufficient equity to cancel the payments. This is where conventional refinance can help as it exchanges a USDA or FHA loan for a conventional one and eliminates associated monthly fees. Note that if you have 20

percent or more equity, you will pay no mortgage insurance on your new conventional loan.

Reimburse a Cash Home Purchase

Did you know that you can use conventional refinance in order to reimburse yourself for a house paid for in cash? Note that the delayed financing rule permits you to make a swift purchase with cash — as is usually required with foreclosures — without depleting your cash reserves, which is excellent. It is worth noting that before the inception of this financing rule, investors had to wait 6 months to get a cash-out refinance on a property they just bought.

This rule eliminates the waiting period, provided you meet these requirements:

You have to document the cash used for the original purchase to the bank
The new loan amount should not be higher than the property’s original purchase value.
A title search has to show that no liens or encumbrances exist on the home.
Buyers must prove that the home sale occurred and no loan was taken on the home. In most cases, a final HUD-1 document is a sufficient proof.

Final Thoughts

You can pay conventional loan refinance with either a variable or fixed interest rate in many cases. If you can meet the loan requirements, conventional loan refinance tends to have the least hurdles to jump than other kinds of mortgages, like the Federal Housing Administration and Veterans Affairs mortgages. One of the best ways to qualify for conventional refinance loan is to have your assets and income in order. Note that if you can show adequate income, make a down payment, and have a qualifying credit score, you will likely get a conventional refinance loan.