Conventional Refinance Options
No Cash Out Refinance (Rate & Term)
These refinances limit the amount of cash you can receive at closing. The goal of a No Cash Out is typically to reduce your interest rate or shorten your loan term. You can receive up to $2,000 at closing before the loan is considered a Cash Out Refinance. This is referred to as a Limited Cash Out Refinance.
You should seek a No Cash Out Refinance when your goal is to:
- Reduce your monthly payment
- Lower your interest rate
- Pay your home off faster
- Switch from an adjustable-rate to a fixed-rate
Cash Out Refinance
Cash Out Refinances allow you to borrow money from your home's equity. Here are some common motivators for a Conventional Cash Out Refinance:
- You want to consolidate your debt under one loan
- You want to pay off high-interest credit card debt and take advantage of a lower mortgage interest rate
- You need cash to fund a home-improvement project
- A divorce requires you to refinance and pay out a former spouse
Conventional Loan Requirements
Required Credit Score
Conventional loans have a minimum credit score of 620. Investment properties and second homes have a higher requirement of 680 and 700 respectively.
To calculate your credit score, lenders must order a tri-merge credit report for each applicant. Each credit report includes a FICO score from each of the three major credit bureaus (Equifax, Experian, and TransUnion). Finally, the lowest, median credit score amongst all applicants is used for mortgage qualification.
CapCenter's credit score requirement for Conventional loans vary by how you plan to occupy the property:
- Primary residences - 620
- Investments - 680
- Second / Vacation Homes - 700
Mortgage Insurance Requirement
Conventional Refinances require Private Mortgage Insurance (PMI) if you have less than 20% equity in your home. You can request cancellation of PMI once you reach 20% equity, and PMI will automatically cancel when you reach 22% equity.
Mortgage Insurance payments will be paid with your monthly mortgage payment and are held in escrow. Annual PMI rates are based on your original loan amount. Your annual PMI rate will typically range from 0.2% - 1.5% but can vary based on factors such as credit score, loan-to-value, DTI, and more.
Mortgage Insurance Example:
Your original loan amount of $400,000 was quoted an annual PMI rate of 0.5%. As a result you will pay $167 per month towards PMI until cancelled.
Conforming Loan Requirement
The FHFA publishes the Conforming Loan Limit each year based on the country's average home value. The limit varies by location - higher cost of living areas such as Washington, DC have a higher loan limit than rural or average cost areas.
The 2024 Conforming Loan Limits for single-unit properties are as follows:
- Most Areas - $766,550
- High-cost Areas - $1,149,825
You will need to seek a Jumbo Loan if your loan amount exceeds the Conforming Loan Limit.
Maximum DTI
The maximum debt-to-income for Conventional loans is 50%. Your DTI is calculated as your monthly debt obligations divided by your monthly gross income.
Advantages of a Conventional Refinance
Avoid Mortgage Insurance
Conventional Loans do not require mortgage insurance if you have 20% equity. Conversely, all FHA loans require mortgage insurance. Mortgage insurance is automatically cancelled when you have made sufficient payments on Conventional Loan.
Choose from a Variety of Loan Terms
Conventional Loans have the most loan term options available. These include:
- 30 Year Conventional Refinance
- 20 Year Conventional Refinance
- 15 Year Conventional Refinance
- 10 Year Conventional Refinance
Special Programs for Conventional Loans
CapCenter offers special programs for Conventional Loans:
- 1-0 Temporary Buydown: CapCenter will subsidize your mortgage payments, reducing your interest rate by 1% for the first year of loan payments.
- CapCenter Community Assistance Grant: Receive a closing cost credit for refinancing a home in a minority census tract.
Conventional Loan Closing Costs
We cover all traditional closing costs for all loans and also cover recordation taxes / fees on refinances. We estimate average savings of around $4,000 when you use CapCenter to refinance a home in Virginia.
Should I Refinance with a Conventional Loan?
A Conventional may be a great option for you if any of the following apply.
- Your credit score is 700 or above.
- You are not a US Military service member / veteran and do not qualify for a VA Refinance.
- Your home equity is 20% or above.
- Your current loan is a Conventional Loan.
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