Conventional Refinance Requirements — The Quick Read: Three things decide whether you qualify: your loan purpose, your equity, and your credit and debt ratios. A rate-and-term refinance needs far less equity than a cash-out refinance. Most files clear on a 620 credit score and a total debt ratio of 50% or less, though the automated finding governs and lender guidelines vary. Every figure here is subject to lender guidelines and full file review, and none of it is a commitment to lend.
Key Takeaways
- Purpose sets equity. A rate-and-term refinance on a one-unit home you live in can reach 95% loan-to-value. A cash-out refinance tops out at 80%.
- 620 is the usual starting score. Higher scores and lower leverage tend to widen your options.
- The automated underwriting finding drives most files. It weighs credit, reserves, equity and ratios together, not one number alone.
- Cash-out has waiting rules. The loan you are paying off must be at least 12 months old, and you must have been on title for six months.
- Equity above 20% is not required for a rate-and-term. Mortgage insurance applies above 80% loan-to-value.
How Does a Conventional Refinance Get Decided?
Three levers do almost all the work: what you want the new loan to do, how much of the home you own outright, and how safe your credit and income look. Pull one lever and the others move.
Across the wholesale programs Lendmire places files with, the order of questions is always the same. First, what is the purpose? Second, what is the value and the resulting loan-to-value? Third, do the credit score and the debt ratio fit the box that purpose and leverage create?
Lendmire is a mortgage broker. It arranges conventional loan programs through wholesale lenders, and those lenders review and decide each file. A broker’s job is to match the file to the right box before it goes in.
Rate-and-Term vs. Cash-Out: The Side-by-Side
A rate-and-term refinance, which the agencies call a limited cash-out refinance, replaces your current loan without pulling meaningful money out. A cash-out refinance does the opposite on purpose. Lenders treat them as two different products.
| Factor | Rate-and-term | Cash-out |
|---|---|---|
| Max LTV, one-unit home you live in | 95% (97% in some cases) | 80% |
| Two- to four-unit home you live in | 95% | 75% |
| Cash back at closing | Incidental only | Allowed |
| Existing loan age | Lender rules apply | 12+ months old |
| Time on title | Lender rules apply | 6+ months |
The 97% case needs two things. The existing loan must be agency-owned, and the first-time-buyer program must allow it. Fannie Mae’s Selling Guide rules on limited cash-out refinances tie the top leverage tier to the agency owning or securitizing your current loan. Your lender checks this before submitting the file.
How Much Equity Do You Need?
For a rate-and-term refinance, you can have as little as 3% to 5% equity. That is the opposite of the “you need 20% equity” myth. For a cash-out refinance, you need at least 20% equity left after the new loan on a one-unit home you live in.
Loan-to-value, or LTV, is the new loan balance divided by the home’s appraised value. If the LTV is 90%, you hold 10% equity. Fannie Mae’s Eligibility Matrix publishes these maximums by purpose and occupancy.
Equity is also tied to occupancy:
- Principal residence, cash-out: 80% on one unit, 75% on two to four units.
- Second home, cash-out: 75%.
- Investment property, cash-out: 75%.
That one sentence is all this article says about a second home or a rental. The lower the occupancy tier, the lower the leverage.
What About Mortgage Insurance?
Mortgage insurance is required above 80% LTV. You may request cancellation once you reach 80% of the original value, with good payment history, no subordinate liens and no drop in value. The servicer must terminate it automatically at 78%. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Published typical annual premiums run from 0.58% to 1.86% of the balance. That is a range, not a quote. Your actual premium depends on your credit and leverage.
One wholesale lane is worth knowing. It reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% ratio ceiling, a thirty-year fixed rate, a primary residence, a conforming balance and its own six months of seasoning. In Texas, that lane is not written on a homestead cash-out, because the state constitution caps those loans at the agency figure. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
What Credit Score Do You Need?
The wholesale conventional programs generally start at a 620 decision score. That is the middle score the lender settles on from your credit reports. Pricing and available terms vary by lender, borrower profile, property type, and full underwriting review.
Here is the nuance. Fannie Mae’s announcement on its automated underwriting system removed the hard 620 minimum for newer automated casefiles. Lenders must still pull scores, and the system judges risk from the full credit picture. Lender overlays, meaning a lender’s own stricter rules, remain common. In practice, 620 still works as the working floor on most files we see.
Credit and equity trade off. A higher score can offset thinner equity, and more equity can help a weaker score. The pricing side works the same way. Cost moves with credit and LTV through the agency’s price-adjustment grid. Cash-out sits in a higher-cost tier than rate-and-term. We do not quote that grid here, because your own numbers matter more than a general chart.
For a deeper look at score floors on equity-pull loans, see the minimum credit score for a cash-out refinance.
Recent Credit Events
Waiting periods after credit events are agency rules, not broker preferences:
- Chapter 7 discharge: four years.
- Foreclosure: seven years.
- Short sale or deed-in-lieu: four years.
Documented extenuating circumstances can shorten these periods. Late payments in the last year or two weigh more heavily than old ones, and this is where file review gets hands-on.
What Debt-to-Income Ratio Is Allowed?
Fannie Mae’s automated system allows a total debt-to-income ratio of up to 50%. Fannie Mae’s debt-to-income rules set these limits.
Debt-to-income, or DTI, is your total monthly debts divided by your gross monthly income. It counts the new mortgage payment, plus car loans, student loans, and card minimums. That is why a refinance can change your DTI through the new payment alone.
The widely repeated 43% limit is not the published automated ceiling. It is a rule of thumb that lenders and websites kept using. Your real limit comes from the automated finding.
Reserves are the cushion that makes a high ratio tolerable. Reserves are the months of mortgage payments you hold in liquid savings after closing. A cash-out file with a DTI above 45% on an automated finding needs six months of them, per Fannie Mae’s cash-out refinance rules.
If new debt shows up or income drops before closing, the file gets re-underwritten. If the ratio then exceeds the caps, the loan is ineligible. Avoid new financing between application and closing.
How Is a Conventional Refinance Underwritten, Step by Step?
1. Pick the purpose. Rate-and-term or cash-out. This decides your leverage cap and waiting rules.
2. Apply and get your Loan Estimate. You will see an estimated value and the loan terms. Collect more than one estimate and compare.
3. Run the automated underwriting. The system weighs credit, reserves, LTV, purpose and DTI together. Some files go to manual underwriting instead.
4. Document the file. Expect income, assets, your mortgage payment history and title work.
5. Establish value. Some eligible refinances qualify for Fannie Mae’s value acceptance, which skips the appraisal. The lender can still order one. A cash-out refinance commonly needs a full appraisal.
6. Review your Closing Disclosure and close. The new loan pays off the old one.
If the appraisal comes in below the estimate, your LTV is recalculated on the lower value. That can drop you into mortgage insurance or out of a tier altogether. A lower value is also a common reason for a revised Loan Estimate.
Where the General Rules Break
The rules above fit most files. These cases do not follow them.
- Delayed financing. If you bought with cash recently, a cash-out refinance can have an exception to the usual seasoning wait.
- Inheritance and legal awards. Seasoning exceptions exist for property received by inheritance or legal award.
- Co-owner buyouts. A limited cash-out can buy out a co-owner, such as an ex-spouse. The buyout counts as a purpose the lender allows, not as ordinary cash back.
- Cash back that is too large. Paying off non-purchase second liens or taking more than incidental cash can turn a rate-and-term into a cash-out, with cash-out equity limits.
- LLC title. A home held in an LLC generally has to move into your own name first.
- Texas homestead. Texas has its own cash-out structure under its constitution. Labels there may not match the agency definitions.
- Government loans. If your current loan is FHA or VA, streamline refinances exist with different rules. They are a separate topic.
- Above the conforming limit. FHFA sets the loan limits annually, and they are higher in designated high-cost counties. Above your county’s limit, jumbo lanes take over, typically starting at a 660 decision score and reaching 90% leverage.
For the equity ceiling in more detail, see the maximum LTV for a conventional cash-out refinance.
What Does the Decision Look Like in Practice?
Picture a homeowner with 12% equity, a 700 score and a DTI in the low 40s. The goal is to drop a loan with mortgage insurance and lock in a new payment. That is a rate-and-term file. Leverage fits well under the 95% cap, so the question becomes whether the new payment and closing costs beat the old loan.
Now picture a homeowner with 30% equity who wants cash for a renovation. That is a cash-out file. At 80% maximum leverage, the cash available is whatever sits between current balance and 80% of value. It also needs the 12-month and 6-month waiting tests to pass.
Break-even is the measure that matters. Add up the closing costs, divide by the monthly savings, and you get the months needed to recover them. Closing costs often get rolled into the new balance, which raises your LTV. Check for a prepayment penalty in your current note before you start.
Common mistakes:
- Refinancing before the waiting periods pass, then losing a month on a rejected file.
- Opening a new credit line mid-process.
- Assuming the estimate equals the appraisal.
- Judging a refinance by the new payment alone instead of break-even and total interest.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
LTV (loan-to-value): The new loan balance divided by your home’s appraised value.
DTI (debt-to-income): Your total monthly debts, including the new payment, divided by your gross monthly income.
Limited cash-out refinance: The agency name for a rate-and-term refinance, with only incidental cash back.
Seasoning: The waiting period a loan or ownership must age before you can refinance on cash-out terms.
Reserves: Liquid savings, counted in months of payments, left after closing.
Lender overlay: A lender’s own rule that is stricter than the agency minimum.
Frequently Asked Questions
Can I refinance with less than 20% equity?
Yes, on a rate-and-term refinance. A one-unit home you live in can reach 95% LTV, and 97% in some cases. You will carry mortgage insurance above 80% LTV. A cash-out refinance does require at least 20% equity remaining on a one-unit home. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Is a 620 credit score really required?
Usually, yes, on the wholesale programs. Fannie Mae’s automated system no longer sets a hard minimum for newer casefiles, but lenders still pull scores and often set their own floors.
What debt-to-income ratio is too high?
Above 50%, an automated file is generally out of range. Manual files stop at 36% or 45%, depending on score and reserves. A ratio in the 45% to 50% zone can still work on an automated finding, with strong reserves and credit.
Do I always need an appraisal?
No. Some eligible refinances qualify for value acceptance, so no appraisal is ordered. The lender can still require one, and cash-out files commonly get a full appraisal.
How soon after buying can I do a cash-out refinance?
The loan being paid off must be at least 12 months old, and you must have been on title for six months. Delayed financing, inheritance and legal-award exceptions exist. A rate-and-term follows the lender’s own timing rules instead.
Your Next Step
Match your goal to the right box before you shop: purpose first, then equity, then credit and ratios. If you are weighing a refinance and want the break-even run on your own numbers, Lendmire can help you compare the programs on the same home.
For the program’s current guidelines, see a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, USDA and HUD-184 home purchase financing with grant-style, forgivable and repayable down payment assistance options in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide B2-1.3-02: Limited Cash-Out Refinance Transactions
2. Fannie Mae Eligibility Matrix
3. Fannie Mae Desktop Underwriter Credit Score Update
4. Fannie Mae Selling Guide B3-6-02: Debt-to-Income Ratios
This article is part of Lendmire’s Conventional Loans series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.