A conventional refinance is the loan of choice for many homeowners in today’s market. While HARP and FHA have dominated the refinance market in years past, the standard conventional refinance is becoming the go-to option now that home equity is returning across the nation.
Conventional refinances rates are low and there are no upfront or monthly mortgage insurance fees required with 20% equity. This is why homeowners are turning to this loan type as a low-cost alternative to other refinance types.
Conventional mortgages are backed by federally controlled agencies Fannie Mae and Freddie Mac. These quasi-government companies purchase loans meeting certain standards, like loan-to-value ratio, credit score, and type of property. This is why conventional loans are often called conforming loans – they must conform to Fannie/Freddie rules.
Banks can lend at very low rates when they approve Fannie- and Freddie-eligible loans. This agency backing translates to a big benefit to the consumer.
Almost every refinance shopper will get a different rate based on their situation. Fannie Mae and Freddie Mac set rate adjustments according to factors in the loan file. For instance, a customer refinancing a rental property will receive a rate that is a quarter to a half of one percent higher than someone refinancing a primary residence. Likewise, someone with a 660 score will receive about a quarter of one percent higher rate than a customer with a 700 score.
In short, conventional loan refinance rates are based on risk. Get the best refinance rate by being a low-risk borrower. But current rates are such that even mortgage applicants who don’t fit neatly inside a box are getting great rates and reducing their monthly payments.
Refinance shoppers often ask whether there is a conventional streamline refinance similar to an FHA streamline loan that does not require an appraisal or income verification. Many homeowners who have a conventional loan now want a refinance option that requires less paperwork.
While there is no official conventional streamline program, the HARP refinance came close, but this program is now expired. Most homeowners did not need an appraisal to use this loan.
However, documentation requirements are often lower with standard refinances, mainly due to computerized approval systems. Most refinance applicants will only need to supply pay stubs, a W2, and a bank statement if any cash is required to close the loan. Additionally, Fannie Mae and Freddie Mac often waive appraisal requirements for standard refinances. The modern refinance process is extremely streamlined compared to just a few years ago.
The standard conventional loan limit is $647,200. A qualifying refinance applicant can open a loan for at least this amount anywhere in the country.
But Fannie and Freddie allow higher limits in some areas. For instance, San Diego, California has a conventional loan limit of $970,800. Refinance consumers in Seattle, Washington and Queens, New York can also be approved for a higher conventional loan.
The highest limit in the country is available in Honolulu, Hawaii, which is even higher than the limit in San Diego.
Homeowners in areas with high housing costs should check their conventional loan limit before payday loans Tennessee they assume they need a jumbo loan.