Conventional Refinance Guidelines: Market Uncertainty
The reoccurring theme lately and that has made its way into this article is that of the thought of refinancing at this point in 2022 as opposed to waiting out the year. As many of you know if you have been up to date on my writings is that the mortgage rates have been on a run-up and have increased in 13 of the last 15 weeks on record. This sudden increase in mortgage rates came about after the Presidential Election and it has sent shockwaves through the real estate and mortgage markets. With all of this uncertainty and not knowing if rates are finally going to recede a bit or if they will push towards a 5% rate is yet to be seen, and it may be the right time to look into 2022 Conventional Refinance Guidelines. If you aren’t aware, a Conventional Loan and Conventional Refinance refers to loans that are in accordance with the guidelines set forth by Fannie Mae and Freddie Mac who are the 2 Government Sponsored Enterprises or GSE’s. These two entities do not make loans, but rather the guidelines that loans need to abide by and also facilitate the sales of your loan after you close. The normal process is you will close on your loan and as long as your loan meets Fannie and Freddie guidelines, your loan is resold to Fannie or Freddie in order to replenish the cash put out by the lender to close your loan. If your loan doesn’t meet these standards, the loan will not be sold and the lender will be stuck holding onto your mortgage which will have a negative effect on their cash.
If you are looking for 2022 Conventional Refinance Guidelines then you should first know what types of scenarios are good for a Conventional Loan Refinance. Now just because you want to refinance into a Conventional Loan doesn’t mean your current loan has to be a Conventional Loan. As with most mortgage products out there, it doesn’t matter what your current loan would be, you just need to make sure you abide by the guidelines of the new loan program. In this situation you would need to qualify under the 2022 Conventional Refinance Guidelines and you will be ready to go. With your Conventional Refinance, you can refinance a lot of loans you may currently have below:
– Consolidate your First and Second Mortgages (If equity and LTV is adequate to get this done)
– Cancel FHA Mortgage Insurance Premium (Refinance your FHA Loan)
– Simple refinance from another conventional loan you already have
– Refinance to a Conventional Loan from a high interest rate Alt-A or bank statement type loan.
– Refinance from an Adjustable Rate Mortgage, ARM, into a Fixed-Rate Mortgage
Conventional Refinance Guidelines: Use Of The Refinance
As with a lot of refinances available to you, the 2022 Conventional Refinance Guidelines allows for borrowers to do a lot with the refinance. Let’s see exactly what you can get accomplished with a Conventional Refinance.
- Non-Owner Occupied Residences: This is one main flexibility that this loan program has over the other government insured mortgages like FHA, VA, and USDA in the fact that Conventional Refinance can be used for second homes and investment properties. These refinances don’t need to be just for primary residences like the others listed above.
- Cash-Out Refinance: Conventional Refinances can also be used for a cash-out loan in order for borrowers to access their equity and use these proceeds for a variety of items. There is no limit to what borrowers can use these funds for such as home improvement, starting college funds, going on vacation, and even debt consolidation. You will now have a mortgage for the existing loan amount plus any cash that is taken out. You can even take money out against second homes and investment properties which can assist the investors to purchase additional properties off the equity of their current investments.
- Cancel FHA MIP: If you are a borrower who has their mortgage that is FHA insured, you have a monthly mortgage insurance premium that is attached to your loan for the entirety of it or until you refinance. This is a big plus for doing a Conventional Refinance in the fact that you can remove this monthly payment in your new loan which can save you hundreds of dollars depending on how much your existing FHA Loan is. As home values have increased for the past 5 years a lot of people should have equity in their homes in order to get these types of refinances accomplished and remove that MIP.
- Refinance From Any Loan: As was previously mentioned, you can use a Conventional Refinance to get out of nearly any loan program that is available out there. You can refinance from a standard FHA Loan and even a bank statement only Alt-A Loan. There really isn’t a scenario that you can’t overcome as long as you qualify and have the proper LTV for the loan to work.
Conventional Refinance Guidelines: Loan Limits, Credit Scores, Debt to Income Ratio
If you have not read my article about the Conventional Loan Limits increase, then you should read that article here. For the first time in nearly 10 years, there was an increase in Conventional Loan limits due to the fact that house values finally surpassed the levels seen before the market crash and Great Recession. These loan limits also vary and adjust for if you are purchasing an 1, 2, 3, or 4-unit property. The 2022 Conventional Loan Limits are as follows:
– 1-unit: $424,100
– 2-unit: $543,000
– 3-unit: $656,350
– 4-unit: $815,650
If you are wondering what your credit scores or debt to income ratios need to be in order to get a Conventional Loan they look quite different than FHA and VA Loans. Conventional Loans need a minimum of a 620 FICO score in order to get approved and a lot of lenders will even require that you have upwards of a 640 FICO to even be considered. In terms of debt-to-income ratio you will definitely need to be under 50% with most programs falling in the 40-45% range for debt to income ratio. Now credit score plays a lot into the mortgage rate you will see with a Conventional Loan because the lower your credit score, the more “expensive” your mortgage rate becomes. As the risk of default increases with lower credit scores, lenders may want to charge you points in order to allow a borrower with a lower credit score to get the rate of a borrower with 700+ FICO. In terms of Conventional Loans, the best rates are given to 720+ FICO with at least 80% LTV or better. If you want to get anywhere near these rates, you will need to pay for it and with every discount point costing 1% of your loan value, it can add up quickly to reduce your mortgage rate from 5% to 4.5%. This reduction of 0.50% will cost 2 points and on a $300,000 loan, this 0.50% reduction would cost $6,000!
Conventional Refinance Guidelines: Conclusion
As you can see by the 2022 Conventional Refinance Guidelines there are some definite positives to be had with these Conventional Loan, and as with any loan program, you want to make sure you are getting into the proper program. This is where experienced professionals come into play and here at Loan Consultants we want to make sure you get into the right loan and we will evaluate your situation and give you honest opinions on what route would be best for you. Our ultimate goal is for you the borrower to be satisfied with your mortgage experience. If you are looking to purchase or refinance, please reach out today at 888-900-1020. We work days, nights, weekends, and holidays in order to serve you better.