If you are ready to refinance your current loan, there are actually several types to choose from. The right one for you will depend on your purpose for getting a new loan and your eligibility for specialty programs. Here are the most common types and how they might help you:
Conventional Mortgage Refinance
A conventional mortgage refinance can allow you to do any number of things: get a lower interest rate, switch into a shorter term, take a co-borrower off the title, or pull cash out of your equity. These loans are good for those with decent equity because they do not require private mortgage insurance if the borrower has at least a 20% stake in their home. The credit requirements, however, are often higher than on other types of refinance loans. A minimum score of 620, for example, is fairly common. Other terms generally include a debt-to-income (DTI) ratio of no more than 50%, and a maximum loan-to-value (LTV) ratio somewhere between 75%-95%. Income verification and appraisals are usually required.
FHA Streamline Refinance
If your existing loan is an FHA loan and you are looking to save money on your monthly mortgage payment, an FHA Streamline makes the process quick and easy. This is not an option, however, if you want to pull cash out of your home. There are looser credit requirements (580 minimum) than conventional loan and you may not need to verify income or have an appraisal. Your maximum DTI can be up to 47% and you must be current on your original FHA loan.
FHA Rate and Term Refinance
If you have an FHA loan and another non-FHA mortgage on your property, you can get a new FHA rate and term refinance home loan. This allows you to roll your second loans or home equity loans and lines of credit into one low interest rate payment. The minimum credit score is the same as the FHA Streamline but you will need an appraisal and to verify your income. The maximum LTV is between 80% -97%.
FHA Cash Out Refinance
If you’d like to tap into your equity and you currently have an FHA mortgage, an FHA cash-out refinance is a good option. The minimum credit requirement is a score of 580 and the LTV max is 80%.
VA Rate and Term Refinance
Similar to the FHA version, this is for veterans and active duty military service members. You’ll have to provide a Certificate of Eligibility, but if you qualify the rates and terms are excellent. You only need a credit score of 580, you can have a DTI maximum of 60% in some cases and a maximum LTV of 100%. Income verification and appraisals are still required.
VA IRRRL
Also known as the Interest Rate Reduction Refinance Loan, this is the VA’s version of a Streamline Refinance. It requires no appraisal, and no income, employment, or asset verification to qualify. These loans do not allow for cash-out and the new rate and payment must be lower than on the existing mortgage. The credit score, LTV, and DTI requirements are the same as a VA rate-and-term refinance.
VA Cash Out Refinance
This allows veterans and active-duty military to pull equity out of their homes. Borrowers must have a minimum credit score of 620, plan to live in the property as their primary residence and have a DTI of 60% or below.
USDA Streamline Loan
This is essentially the same thing as the FHA and VA varieties, but for those with loans backed by the U.S. Department of Agriculture.
Jumbo Loan Refinance
For those with loan amounts over the conventional loan limits, a jumbo loan refinance is required. The minimum credit score is the highest (680) on these refinances because of the added risk to the lender. The max DTI is 45% and the LTV can go up to 89%. Reserves are sometimes required, as are income verification and appraisals.
Give us a call today to discuss these options and to see which one would be best for you.
