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Refinance Requirements

Moving forward with a refinance is a big step for most homeowners. A refinance might allow you to lower your mortgage rate, get rid of your PMI, or obtain cash-out for home improvements or debt consolidation.

Learning what the refinance requirements are will save you time and money. You’ll also discover what refinance loan programs are available to you so that you can compare your options.

Current Refinance Requirements

Here are the basic refinance requirements for homeowners looking to refinance their current mortgage. It’s important to know that underwriting requirements can change, so for the most up-to-date list of requirements, please contact Loan Officer Kevin O’Connor at 1-800-550-5538.

  • You’ll generally need a 620 or higher credit score
  • Home improvement and debt consolidation options are available
  • Loan amounts up to $2,500,000
  • A Debt-To-Income (DTI) ratio of 50% or less
  • Eligible ownership: primary residence, secondary residence, and investment properties
  • Eligible properties: Single Family Residence, Condominiums, and Multi-unit properties (up to four units) are allowed
  • Loan To Value Ratio of 97% or less (depending on the program)
  • Prior Bankruptcy and/or Foreclosure are allowed under certain circumstances

There certainly are more requirements but the list above are the most important requirements that each homeowner should know.

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Specific Home Loan Program Requirements

Now that you know the basic refinance requirements, let’s talk about the most popular home loan programs and what specifically you need to refinance your current mortgage under each program.

Conventional Home Loan

There are various types of Conventional home loans;

  • Conforming home loans
  • Jumbo home loans
  • Bank statement home loans

Conforming Home Loans

The most popular home loan in California is the Conforming home loan. They were given this name because the underwriting guidelines and the loan amounts limits “conform” to Fannie Mae and Freddie Mac standards.

The refinance requirements for a Conforming home loan are fairly standard throughout the industry. You’ll need a 620 or higher credit score, 3% equity in the home, and a DTI below 50% (ideally 45%, especially if it’s a cash-out refinance).

Loan amount limits are dependent on what county the property is located in. And if you’ve had a Bankruptcy and/or Foreclosure there are some options available to you.

Jumbo Home Loans

Jumbo home loans do not “conform” to all the guidelines and loan limits that Fannie Mae and Freddie Mac have but they do have a lot of similarities. A big difference is credit score requirements. If you have a credit score below 700 you might still be able to obtain a Jumbo home loan but the rates are high and so are the closing costs.

If you are in this situation there is a way out of it, put 40% down. I know that’s easier said than done, especially on a Jumbo home loan, but that’s the solution to avoiding higher rates and closing costs.

Also, most Jumbo home loans require at least 10% equity and underwriters usually want a DTI ratio below 42%.

Bank Statement Mortgage

The refinance requirements for a Bank Statement Mortgage are going to be the most fluid and usually come with interest rates that are higher than Conforming and Jumbo loans.

If you are considering a Bank Statement Mortgage it’s super important you talk with the Loan Officer about the current refinance requirements as they often change. Ideally, you’ll want at least 10% equity (most likely more), a 700 or higher credit score, and a DTI ratio below 40%.

FHA Home Loan

One of the best first-time homebuyer programs is the FHA home loan program. So it should not surprise you that they also have one of the best refinance programs in the industry.

The FHA Streamline Refinance is a great home loan product. No income documentation, no appraisal, and a super fast close. The main requirement is you currently have to have an FHA home loan.

The regular FHA home loan refinance program offers some nice features as well. Qualifying is a bit easier than a Conforming loan and interest rates are generally lower than Conforming home loan rates.

There is a downside though, all FHA home loans come with Mortgage Insurance, even if your Loan-to-Value ratio is below 80%. But the good news is that if you have a 620 credit score you’ll get a much lower rate than if you went with a Conforming home loan.

VA Home Loan

Every current and former military service member should check out the VA home loan program. No set loan limits (although the lender usually has one), flexible credit score, and debt-to-income ratios.

And guess what? Like the FHA Streamline refinance program, the VA also offers a streamline refinance option (and your current loan needs to be a VA loan if you want to do the VA Streamline refinance.

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Refinance Requirement FAQs

Here are the answers to some frequently asked refinance requirement questions.

Can you still refinance if you have collections and/or chargeoff accounts on your credit report?

Most likely yes (provided your credit score is high enough). There are multiple different home loan programs that allow for this so be sure to talk about your situation with the Loan Officer you’re working with.

Do mortgage lenders require you to have homeowners insurance?

Absolutely! Every mortgage lender requires you to have homeowners insurance in case something happens to the home.

Will I be required to set up an impound account (aka an escrow account) to pay my property taxes and property insurance?

If you are doing a Conventional loan, generally not unless your Loan-to-Value ratio is over 80%. If you are doing an FHA program, you have to set up an impound account even if you are below a Loan-to-Value ratio of 80%

Does the lender require original documents?

99% of the time they don’t. A clear copy of the document usually meets the underwriting refinance requirement.

Can I have a non-occupying co-borrower?

For some home loan programs, you can. If you are someone with income issues, having a non-occupying co-borrower might make the difference between getting turned down and getting approved.

Do I need to lower my interest rate by 1% or more to get a benefit from a refinance?

Usually not. Sometimes, lowering your rate by only .50% makes a huge difference. Besides lowering your interest rate, other benefits include cash-out to pay off high-interest credit card debt or moving from a 30-year fixed rate to a 20 or 15-year fixed rate. Another benefit might be doing a cash-out refinance to remodel your home.

Loan Officer Kevin O'Connor

About The Author

Loan Officer Kevin O'Connor has over 17 years of experience as a Mortgage Loan Originator and is a trusted resource for mortgage education and information. He's licensed by the state of California and the Nationwide Mortgage Licensing System. He has a top rating with the Better Business Bureau, Google, Yelp, and Zillow. You can contact him at 1-800-550-5538. CA DRE #01499872 / NMLS #247447