Refinancing Your Mortgage: Requirements Explained

There’s no question about it – a mortgage refinance can lead to big changes. Refinancing can allow you to borrow on your home’s equity, get rid of mortgage insurance, shrink your monthly payments or shorten your loan term.

The first step to refinancing is knowing if you’re eligible and prepared for the process. It’s important to make sure you research the type of refinance you’re considering because refinance requirements can vary for each type.

Understanding Requirements To Refinance A Mortgage

Refinancing simply means replacing your existing mortgage loan with another one that has a different rate and term. You pay off your current mortgage with the proceeds from a new loan.

You can even use a cash-out refinance to take on a loan worth more than the amount you currently owe and get the difference in cash.

Reasons To Consider Refinancing

Homeowners usually refinance their home to do the following:

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

To find out if you could benefit from refinancing your mortgage, use the calculator below to crunch the numbers. Enter your loan amount, home value, credit score and other information to see how your loan could change with a simple refinance.

Mortgage Refinance Requirements By Type

Different lenders have slightly different refinance requirements. To make it simple, we’ve summarized the general requirements to refinance a mortgage in the table below. After you look at the table, be sure to read more about each requirement.

What Do You Need To Refinance Your Home?

Borrowers must meet a variety of requirements depending on the type of refinance. For cash-out refinance options, your name must be on the title of your home for a minimum of 6 months if you have a jumbo loan or VA loan. You’ll likely need to wait a year for a conventional or FHA cash-out refinance. These rules have some limited exceptions, including if you’re taking advantage of delayed financing or you’ve inherited the home.

You’ll need to consider a few other refinance requirements before applying to your mortgage lender.

1. An Adequate Credit Score

Your credit score directly impacts your ability to refinance. Your credit score is a number ranging from 300 – 850 that’s used to indicate your creditworthiness. Lenders look at your score to determine how likely you are to repay your debts and what mortgage rate you can get. Minimum credit scores vary by refinance type.

Conventional Refinance Credit Score Requirements

Just like with your original mortgage, the higher your credit score, the better your rate. Most lenders require a credit score of 620 to refinance to a conventional loan.

FHA Loan Refinance Credit Score Requirements

FHA loans have a 500 minimum median qualifying credit score. However, most FHA-approved lenders set their own credit limits. Rocket Mortgage® requires a minimum 580 credit score to qualify. The credit score to qualify for a cash-out FHA loan refinance is often slightly higher at 620. The exception is if you already have your loan with us and you're taking cash out to pay off debt at closing. The median credit score can be as low as 580.

FHA Streamline Refinance Credit Score Requirements

You can also refinance through an FHA Streamline refinance, which enables you to refinance an existing FHA loan to a lower interest rate more quickly. You can avoid a lot of extra paperwork and continue with a no-appraisal refinance in many cases. Since you’ve already proven you’re a low credit risk for an FHA-guaranteed loan through your original FHA mortgage, the streamline option can save you time and money.

VA Loan Refinance Credit Score Requirements

If you're looking to lower your rate or change your term, the minimum median qualifying credit score to get a VA loan is 580. You can also take out a VA cash-out refinance at this score as long as you leave at least 10% equity in your home after the refinance. If your median score is 620 or higher, you can cash out up to the full amount of your equity.

VA IRRRL Credit Score Requirements

The Department of Veterans Affairs loan program offers a refinance streamline program called an Interest Rate Reduction Refinance Loan (IRRRL). Rocket Mortgage requires a minimum 580 credit score to proceed with a VA IRRRL. If you want a VA IRRRL with Rocket Mortgage but you’re switching from a different lender, you'll need a minimum credit score of 600.

If you're worried about qualifying for a refinance with your current credit score, know there are strategies for refinancing with bad credit.

Jumbo Loan Refinance Credit Score Requirements

The credit score needed to refinance a jumbo loan can vary by lender and by loan type. The typical minimum credit score to qualify for a 30-year fixed jumbo loan refinance is 680. However, lenders may require up to 740 for 15-year fixed loans or 760 for investment properties.

2. Substantial Home Equity

In addition to an adequate credit score, you must have built up enough equity in your home to qualify for a refinance. Home equity is the percentage of the home’s value you own, which is the amount you’d get if you sold the house and paid off your mortgage. The more equity you have, the better.

20% Equity Or More

Generally speaking, you should have at least 20% equity in your home 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. This number is often the amount of equity you’ll need if you want to do a cash-out refinance, too.

It’s important to also note that most mortgage lenders allow borrowers to only borrow up to 80% of their home’s value for a cash payment. Although, if you’re refinancing with a VA loan, your lender may allow a higher loan-to-value ratio (LTV), depending on your credit score and personal situation. At Rocket Mortgage, you can cash out up to 100% of your equity with a minimum 620 FICO® Score.

Under 20% Equity

If your equity is under 20% and you have a good credit rating, you may still be able to refinance. But you might have to settle for a higher interest rate or mortgage insurance. You may find it’s worth refinancing even if you don’t have much equity if interest rates have dropped significantly since you closed on your mortgage.

Interest-reduction FHA Streamline refinance loans have no equity requirements. You do need 20% equity for a cash-out refi in most circumstances.

3. Limited Other Debts

Your debt-to-income ratio (DTI) comes into play when you decide to refinance your mortgage. Your DTI is expressed as a percentage. It equals your total minimum monthly debt divided by your gross monthly income.

Lenders use DTI to gauge your ability to pay your home loan. Your total minimum monthly debt is made up of the following minimum monthly payments:

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

Many lenders prefer your DTI sit at 36% or lower, but you could qualify with a higher DTI. In general, the higher your DTI, the harder it is to qualify for a refinance. If you think your DTI is too high, take steps to reduce your debt before refinancing your mortgage.

4. Affordable Closing Costs

The cost to refinance will depend greatly on your closing costs, so it’s important to understand the amount of money required to close the loan. Your closing cost amounts can vary, but most closing costs include loan origination fees, appraisal fees, prepaid property taxes, title fees and credit check fees.

Some lenders, including Rocket Mortgage, may not require you to bring money to cover your costs to the closing, meaning you can sometimes roll all your closing costs into the new mortgage.

5. Established Income

Your lender must look at your finances to determine the interest rate to charge on your refinance and will require proof of income when you apply. You can use:

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

Pay stub requirements apply to co-borrowers on the loan as well. Lenders use these details to make sure you can afford your mortgage payments in the future. If you’re self-employed, you'll also need to provide:

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

This is a non-exhaustive list of documentation.

Once you’ve crunched the numbers and confirmed your eligibility, it's time to apply. Your lender will require you to offer up financial details and account information. Your credit report lays out how much money you owe, but your lender also needs this information from you. You’ll need to provide account statements for your mortgage, any home equity lines of credit, car loans and student loans.

FAQs About Refinance Requirements

Let’s take a closer look at some frequently asked questions surrounding mortgage refinance requirements.

What are the income requirements for refinancing a home?

You’ll need to provide your lender with proof of income to qualify for a mortgage refinance. Documents like W-2s, pay stubs and tax returns can help your lender verify your income and help to provide proof that you’ll be able to repay your loan.

What credit score do I need to refinance my home?

For a conventional loan refinance, you’ll usually need a credit score of 620. To refinance an FHA loan with Rocket Mortgage, you’ll need a score of 580, and the same goes for VA loan refinances and VA IRRRLs. For jumbo loan refinances, expect to qualify with a minimum score of 680.

What disqualifies me from refinancing?

Homeowners are commonly disqualified from refinancing because they have too much debt. If your DTI is above your lender’s maximum allowed percentage, you may not qualify to refinance your home. A low credit score is also a common hindrance.

What do I need to do for the homeowners insurance verification?

To move ahead with a refinance, you need to have a current homeowners insurance policy on your home. It should have enough coverage to satisfy the lender’s requirements for the amount of your refinance. Contact your insurance provider to determine whether your coverage is sufficient.

Do I need title insurance when I refinance?

Yes. As a homeowner, you may have already purchased a title insurance policy to protect your interests. This owner’s title policy remains in effect for as long as you own the house. Title insurance is protection against loss that arises from problems connected to the title of your property. The coverage includes liens, fraud, undisclosed heirs and unpaid real estate taxes.

There’s a separate policy that protects the lender’s interests. It’s good for as long as you have your loan. So each time you get a new mortgage, you'll need a new lender’s title policy.

The Bottom Line: Know What You Need To Refinance A Home Before Applying

Refinancing your existing mortgage has many benefits. However, you should take the time to ensure you meet all requirements beforehand.

Rocket Mortgage is ready to guide you seamlessly through every step of the refinancing process. Fill out an online application today to find out which refinancing options you qualify for. You can also give us a call at (833) 326-6018.