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Mortgage refinance rates have been hovering near historic lows for quite some time now. If your current mortgage rate is higher than 3.5% or 4%, it may be worth your time to consider refinancing your mortgage soon.
Additionally, you might consider a refinance if your monthly payment is unaffordable or your creditworthiness has improved since you first bought your home.
You can achieve a few common goals through a mortgage refinance. These reasons to refi might include:
| Conventional loan | FHA loan | VA loan | USDA loan | |
|---|---|---|---|---|
| Minimum credit score | 620 | 580 | 620 | No minimum |
| Maximum DTI ratio | 45% | 43% | 41% | No maximum |
| Maximum LTV ratio | 97% | 97.75% | 100% | No maximum |
You typically need at least 3% equity to refinance your mortgage. There are programs available to homeowners who either don’t have any equity or have negative equity, meaning their outstanding mortgage balance is higher than their home’s value.
The most notable risks that come with mortgage refinancing include:
It can take 30 to 45 days to refinance a home. Your lender might take more or less time to close a refinance, depending on how much business they have and whether they use a digital mortgage application process.
Yes, there are refinance closing costs. These costs range from 2% to 6% of your new loan amount, depending on your loan’s size.
You may qualify for a no-closing-cost refinance, but don’t be fooled by the name. These aren’t “free” refinances — there aren’t upfront costs at closing; you’ll instead pay in the form of a higher interest rate or larger loan amount.
While it’s more difficult to refinance a mortgage with bad credit, it’s not impossible. For example, you may qualify to refinance an FHA loan with as low as a 500 credit score, provided that you have at least 10% home equity. There’s no minimum credit score required for a VA refinance.
Mortgage refinance rates tend to mirror mortgage purchase rates. However, refinance rates differ from lender to lender, which is why it’s important to shop around and find a rate that’s competitive enough to replace your current mortgage.
If you’d like to buy down your mortgage rate to save even more on interest and shave a few dollars off your monthly payment amount, it may make sense to pay for mortgage points.
Be mindful that each point costs up to 1% of your loan amount. On a $250,000 mortgage, one point would cost you $2,500 at the closing table.