What is a Conventional Refinance Loan?
A Conventional Refinance Loan allows homeowners to refinance their existing mortgage to a new loan with better terms, a lower interest rate, or reduced monthly payments. It can also help homeowners remove private mortgage insurance (PMI), shorten their loan term, or tap into home equity.
This loan is best for homeowners with good credit and stable income who want to take advantage of better market conditions or financial goals.
How Does a Conventional Loan Work?
Refinancing replaces your current mortgage with a new one, ideally with a lower interest rate or improved terms.
Examples of How a Conventional Refinance Works:
Example 1: Lowering Your Interest Rate
A homeowner has a 6.5% interest rate on their current mortgage. By refinancing to a 4.5% rate, they reduce their monthly payment by $300.
Example 2: Removing PMIA borrower originally bought a home with 10% down and is paying PMI.
After refinancing with 20% home equity, they eliminate PMI and save $150 per month.
Example 3: Switching from a 30-Year to a 15-Year Loan
A homeowner wants to pay off their mortgage faster and save on interest. By refinancing from a 30-year to a 15-year loan, they pay more monthly but save thousands in long-term interest.
Qualifications for a Conventional Loan
✅Credit Score Requirements:
Minimum 620+ credit score, with better rates for 700+ scores.
✅Debt-to-Income (DTI) Ratio:
Typically 43% or lower, but some lenders allow up to 50% with strong compensating factors.
✅Home Equity Requirements:
At least 3%-5% equity needed for a standard refinance.20% equity required to eliminate PMI.
✅Income & Employment Verification:
Must show 2 years of steady employment and stable income.
Is a Conventional Loan Right for You?
A Conventional Refinance is perfect for homeowners who want to lower their rate, remove PMI, or shorten their loan term. With better rates and flexible terms, this loan provides a cost-saving opportunity for financially stable borrowers.
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