Understanding Mortgage Refinance Requirements
Refinancing your home can be a good option if you want to secure a better rate, adjust your term, consolidate debt or tap your home equity for renovations. You must meet specific refinance requirements, however, which vary by loan type. Learn more about what it takes to refinance, including the credit score and debt-to-income ratio requirements for different loan types.
Key takeaways
- You may want to consider refinancing if you can get a better interest rate or save on your monthly payments.
- Conventional refinance loans tend to have stricter requirements than other loan types.
- Refinance requirements can vary between lenders.
Refinance requirements at a glance
| Refinance type | Minimum credit score | Maximum DTI ratio Debt-to-income (DTI) ratio compares your monthly gross income to your monthly debt payments. | Maximum LTV ratio LTV ratio compares the amount you’re financing to the home's appraised value. | Income verification |
|---|---|---|---|---|
| Conventional refinance | 620 | 50% | 97% | Yes |
| FHA refinance | 500 to 580 | Varies | 97.75% | Yes |
| FHA streamline refinance | 500 to 580 | Varies | N/A | No |
| VA refinance | N/A | 45% to 65% | 90% to 100% | Yes |
| VA IRRRL | N/A | 45% to 65% | 90% to 100% | No |
What you need to refinance your home: 7 requirements
Refinance requirements can vary based on the loan program, lender and refinance option you choose — for example, a cash-out refinance typically has stricter requirements than a traditional, rate-and-term refinance. Before applying to replace your current mortgage, here are a few refinance requirements to consider:
1. Credit score
Your credit score directly impacts your ability to refinance, as well as the rates and terms you’ll get. Generally speaking, the higher your credit score, the stronger your approval chances. Minimum credit score requirements vary by loan type:
- Conventional refinance: Most conventional mortgage lenders require borrowers to have at least a 620 credit score.
- FHA refinance: FHA loans require a minimum 500 credit score, though many lenders set higher requirements. You’ll need at least a 580 to be eligible for maximum financing.
- VA refinance: VA loans don’t have a set minimum credit score requirement, though most lenders prefer a 620 or higher.
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2. Debt-to-income (DTI) ratio
Your DTI ratio — your monthly debt payments divided by your monthly gross income — is a key tool lenders use to assess your ability to afford your new mortgage payments. Most lenders prefer a 35% DTI ratio or lower, though it’s possible to qualify for a refinance with a higher DTI.
The monthly payments you make toward your credit cards, student loans, auto loans and other recurring debt count toward the DTI ratio calculation. Your everyday living expenses, including groceries and utilities, won’t count against you.
3. Loan-to-value (LTV) ratio
Your LTV ratio is a measurement, expressed as a percentage, of how much of your home’s value you’re borrowing. LTV ratio requirements vary by loan type — for example, VA mortgage guidelines allow borrowers to finance up to 100% of the home’s price, while conventional loans typically cap the LTV at 97%. FHA streamline and VA IRRRL streamline loans don’t require an LTV calculation.
4. Income requirements
There’s no one-size-fits-all income requirement for refinancing, but you’ll need to show that you make enough money to repay your mortgage. Your lender will likely want to see proof of income, which may include the following documents:
- Tax returns
- W-2s
- Pay stubs
- 1099s
- Bank account statements
- Profit and loss statements (if you’re self-employed)
5. Asset requirements
The lender will likely want to check that you have sufficient assets — such as money in a savings account — to cover the loan closing costs. Some loan types, including jumbo refinance loans, may require you to have mortgage reserves equal to at least six months of mortgage payments.
6. Home appraisal
You may need to get an appraisal to verify that your home’s value aligns with the new loan amount, and to show that the lender isn’t lending more than the home is worth. Appraisal fees generally range between $300 and $500, and the borrower usually covers the cost. You won’t need an appraisal for an FHA streamline or VA IRRRL refinance.
7. Closing costs
Refinance closing costs are similar to purchase loan costs, and may include:
- Loan origination fees
- Application fees
- Credit check fees
- Home appraisal fees
- Title search fee
- Recording fee
- Document preparation fee
How much does it cost to refinance?
The cost to refinance depends on your loan size and lender, but is generally 2% to 6% of your loan amount. That means if you take out a $300,000 loan, you may pay between $6,000 and $18,000 in closing costs.
Cash-out refinance requirements
A cash-out refinance allows you to borrow more than you currently owe and pocket the cash difference to use as you see fit. Here are the basic requirements by loan type:
| Refinance type | Minimum credit score | Maximum DTI ratio | Maximum LTV ratio |
|---|---|---|---|
| Conventional cash-out refinance | 640 | 45% to 50% | 80% |
| FHA cash-out refinance | 500 | 43% | 80% |
| VA cash-out refinance | No minimum, though most lenders require a 620 score or higher | 41% | 90% |
Frequently asked questions
The length of time you have to wait between purchasing and refinancing a home varies by loan type. For example, you can get a rate-and-term refinance any time after getting a conventional loan, but you must wait 210 days (or six consecutive mortgage payments — whichever is longer) to refinance a VA loan.
It typically takes up to six weeks to complete a refinance, though it can vary by loan type. Appraisal issues and missing documents can extend the time it takes to close on a refinance.
There’s no set income requirement for refinancing, but you typically must show proof of stable employment and sufficient income to cover your new mortgage payments.
It’s rare for a refinance to be denied after closing. This is because once a refinance loan is finalized and closing documents are signed, it creates a legally binding contract between you and the lender.
Qualifying for a refinance loan can be difficult, as it generally involves having solid credit, manageable debt payments and enough home equity. You’ll also need to budget for closing costs, which can run up to 6% of the loan amount. Take an honest look at your situation, including the shape your credit is in, before deciding if refinancing is the best option for you.