There are a few key factors that come into play when considering how much equity you need to refinance to a conventional loan. Below, I'll break down what you need to know.
What Is a Conventional Loan?
First, let's define what we mean by a conventional loan. This is a type of mortgage that is not backed by the government (unlike FHA and VA loans). Typically, conventional loans require a higher credit score and a larger down payment than government-backed loans.
Loan-to-Value Ratio
One factor that will impact how much equity you need to refinance to a conventional loan is your loan-to-value (LTV) ratio. This is the amount of your current mortgage divided by the appraised value of your home. Generally, lenders want to see an LTV of 80% or lower for a conventional loan.
Credit Score
Another important factor to consider is your credit score. To qualify for a conventional loan, you'll typically need a score of at least 620. However, the higher your score, the better interest rate you're likely to get.
Equity Requirements
In terms of equity requirements, most lenders will require at least 5% equity in your home to refinance to a conventional loan. However, this can vary depending on the lender and your specific circumstances. In some cases, you may need closer to 20% equity to avoid paying private mortgage insurance (PMI).
Benefits of Refinancing
Before we dive too deep into the equity requirements, it's worth taking a moment to discuss the benefits of refinancing to a conventional loan. Some potential benefits include:
How Much Equity Do You Have?
To determine how much equity you have in your home, you'll need to subtract your outstanding mortgage balance from your home's current value. For example, if your home is worth $300,000 and you owe $200,000 on your mortgage, you have $100,000 in equity.
Working with a Mortgage Professional
If you're considering refinancing to a conventional loan but aren't sure how much equity you have or what the equity requirements are, it's a good idea to work with a mortgage professional. They can help you understand your options and guide you through the process.
At Mortgage Brokers Pro , we specialize in helping homeowners refinance their mortgages. Our team of experts can answer any questions you may have and help you determine whether a conventional loan is right for you. Contact us today to learn more!