Refinancing Your Mortgage: What Are The Requirements?

Refinancing your mortgage can allow you to do many things. You can shrink your monthly payments or borrow on your home’s equity. Moreover, you can get rid of mortgage insurance or even shorten the term of your loan.

The first step to refinancing is knowing if you qualify. Then, you should prepare for the process. Here we’ll explain what you need to know about the requirements before you get started.

What Is Refinancing?

Refinancing is when you replace your existing mortgage with another one. The difference is that this new mortgage has a different rate and term. And you pay off your current mortgage with the proceeds from a new loan.

Usually, homeowners refinance their home to:

  • Negotiate a loan with a lower interest rate or monthly payment
  • Change their loan type from an adjustable-rate mortgage to a fixed-rate mortgage
  • Get cash to make home renovations or repairs
  • Pay down high-interest credit card debt

How Long Have You Owned The House?

In order to refinance, generally, your name must be on the title of your home for a minimum of 6 months. This is if you have a conventional mortgage, VA loan or a jumbo loan and want to do a cash-out refinance. If you have an FHA loan, you’ll likely need to wait 6 months to a year for a cash-out refinance after you buy a house.

Credit Score

Your credit score is crucial when it comes to refinancing. A credit score is a number that ranges from 300 – 850 and is used to indicate your creditworthiness. Lenders look at your credit score to determine how likely you are to repay your debts.

Your current credit score determines whether you’re eligible for a refinance. Also, it determines the mortgage interest rate you can get for your refinance. So, the higher your credit score is, the better your interest rate may be.

To refinance to a conventional loan, most lenders require a credit score of 620.

To qualify for an FHA cash-out refinance, you must have a minimum credit score of 580, according to FHA guidelines. However, most FHA-insured lenders set their own limits higher to include a minimum score of 600 – 620.

Home Equity

Moreover, to qualify for a refinance you must have built up enough equity in your property. Home equity is the percentage of the home’s value that you really own. Also, is the amount you would get if you sold the house and paid off your mortgage.

20% Equity Or More

Generally, you should have at least 20% equity in your house if you want to refinance. If you want to get rid of private mortgage insurance (PMI), you’ll likely need 20% equity in your home. Also, this is often the amount of equity you’ll need if you want to do a cash-out refinance.

Under 20% Equity

If your equity is under 20% and you have a good credit rating, you may still be able to refinance. However, your lender may charge you a higher interest rate or have you take out mortgage insurance.

Other Debts

Your debt-to-income ratio (DTI) is extremely important when you decide to refinance. Lenders use the DTI to determine your ability to pay your home loan. Your DTI ratio is a percentage and expresses your total minimum monthly debt divided by your gross monthly income.

Your total minimum monthly debt is formed by all your minimum monthly payments for:

  • Mortgages
  • Car loans
  • Student loans
  • Home equity loans
  • Credit card debt
  • Any other debt

Most lenders prefer that your DTI is at 50% or lower. Basically, the higher your DTI, the harder it is to qualify to refinance.

Closing Costs

Your closing cost amounts can vary. But most closing costs include loan origination fees, appraisal fees, title fees, prepaid property taxes, credit check fees and more. That’s why is important to understand the amount of money required to close the loan.

Proof Of Income

Your lender must take a look at your finances to determine the interest rate to charge on your refinance. Providing proof of income is required when you apply for a refinance, such as:

  • W-2s
  • 1099s
  • Tax return
  • Income history
  • Employment history
  • Pay stubs (past 2 – 3 months)

If you’re self-employed, you’ll also need to provide:

  • Federal income taxes for the last 2 years
  • Profit-and-loss statements

Lenders use this information to ascertain the likelihood you’ll make your payments in the future. If you show little risk, you’ll have a lower your interest rate.

Homeowners Insurance

To continue with the refinance, you need to have a current homeowners insurance has enough coverage to satisfy the lender’s requirements. To ensure that you’re covered, lenders may order a refinance appraisal.

An appraiser will visit your property and analyze local real estate data to determine the current value of the property. If its value has increased, you may have to bump up your homeowners insurance coverage.


Refinancing your existing mortgage can bring you a lot of benefits, including allowing you to lower your monthly payments, get rid of mortgage insurance, borrow on your home’s equity, or shorten the term of your loan.

If you want to know more about this subject, do not hesitate to fill in the following application form. If you have questions about mortgages, you can also call us at +1 (800) 638-6035 or email us at We’ll get back to you in 24 hours or less.

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