The Quick Read: You refinance a conventional loan by choosing a goal, checking your equity and credit, comparing offers, applying, getting the home valued, clearing underwriting, and closing on a new loan that pays off the old one. The goal decides which of two tracks you are on: a rate-and-term refinance or a cash-out refinance. Each track has its own leverage limits, waiting periods, and paperwork, all subject to lender guidelines and full file review.
What Does It Mean to Refinance a Conventional Loan?
A refinance replaces your current mortgage with a new one. The new loan pays off the old lien, and you start making payments to the new servicer. Lendmire’s conventional loan programs are brokered through wholesale lenders in 16 states.
Refinance savings and break-even estimate
The starting figures are an example value with a balance in proportion and a placeholder for costs. Replace them with yours, and enter the current rate from your statement.
Editable benchmark: 7.32% as of October 22, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $245,000 current balance, a current rate you enter and a remaining term seeded at twenty-five years, closing costs seeded at $5,000 as an editable placeholder (not a fee quote) and rolled into the new loan, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The new rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a refinance quote; a refinance is priced by the lender at lock, and the current rate, the remaining term and the closing costs are figures you enter. The current payment is estimated from the balance, the current rate and the remaining term; the break-even divides the closing costs by the monthly saving and ignores the interest effect of a longer term. On the VA IRRRL the funding fee is added to the loan unless the veteran is exempt. Taxes and insurance are editable estimates. Licensed in sixteen states for consumer mortgages; Lendmire is a broker, never the lender.
People refinance for a handful of reasons: a lower interest cost, a different monthly payment, a shorter term, dropping mortgage insurance, or pulling out equity. The reason matters because it sorts your file into a category. Everything else follows from that.
Key Terms Defined
LTV (loan-to-value): The new loan balance divided by your home's value, shown as a percentage.
Rate-and-term refinance: A refinance that changes your rate, term, or both without taking meaningful cash out. Agency guides call it a limited cash-out refinance.
Cash-out refinance: A refinance that pays you cash from your equity or pays off non-purchase debt against the home.
Seasoning: The waiting period tied to how long you have owned the home or held the loan you are paying off.
DTI (debt-to-income ratio): Your total monthly debts, including the new housing payment, divided by your gross monthly income.
Mortgage insurance: Coverage the borrower pays for the lender when equity is under 20%.
Which Track Are You On: Rate-and-Term or Cash-Out?
Your goal picks the track. If you only want a new rate, term, or payment structure, you are on the rate-and-term track. If you want cash beyond a small amount, or you are paying off a second lien that was not used to buy the home, you are on the cash-out track.
Here is the side-by-side, using figures for a principal residence.
| Factor | Rate-and-term | Cash-out |
|---|---|---|
| Purpose | New rate or term | Take equity as cash |
| Max LTV, 1 unit | 95% (97% in limited cases) | 80% |
| Max LTV, 2-4 units | 95% | 75% |
| Mortgage insurance | Required above 80% | Required above 80% |
| Seasoning | None on the old loan | 12 months old, 6 on title |
Those leverage figures reflect the agency framework, which the Fannie Mae Eligibility Matrix lays out by transaction and occupancy. Across the wholesale programs I place files with, the 97% tier applies where the existing loan is agency-owned and the first-time-buyer program allows it. A cash-out also has to clear its own seasoning: the loan being paid off must be at least 12 months old, measured note date to note date, and a borrower must have been on title for 6 months. Delayed financing, inheritance, and legal-award exceptions exist.
One wrinkle: a rate-and-term refinance can pay off your first mortgage, your closing costs, and a purchase-money second lien, with only incidental cash back. Per Fannie Mae's limited cash-out rules, at least one borrower must be on title at application, and a home previously listed for sale must come off the market by the new loan's disbursement date.
Step 1: Set the Goal and Run the Break-Even
Start with a plain question: what must this refinance do for you? Then run the break-even before anything else. Divide your total closing costs by your monthly savings. The answer is how many months you need to keep the loan to come out ahead.
Plan to move in a few years? A refinance may not pay for itself. Also watch the term. A lower payment can come from a longer loan, which raises total interest even when the monthly number drops. Know how much of any savings comes from the rate and how much from stretching the term.
Check for a prepayment penalty on your current loan too. If one exists, it comes due when you refinance.
Step 2: Check Equity, Credit, and Ratios
Lenders look at four things: equity, credit, DTI, and reserves. Check them yourself first.
Equity. Estimate your home value, divide your current balance by it, and compare the result with the LTV limits above. Rolling closing costs into the new loan raises the balance and the LTV, so include them.
Credit. Across the wholesale conventional programs I work with, the floor starts at a 620 decision score. The automated underwriting finding governs most files. Some lenders set higher floors, and your score also shapes your cost.
DTI. Automated underwriting allows a total ratio up to 50%. Manually underwritten loans run 36%, stretching to 45% with the reserve and score factors in the Eligibility Matrix. On a cash-out, a DTI above 45% on an automated file can trigger six months of reserves, per the Selling Guide's cash-out section.
Property and occupancy. Primary residences get the best leverage. Second homes and rentals carry lower caps, and occupancy decides the leverage. Condo, co-op, and 2-4 unit properties can also face extra review.
Step 3: Gather Your Documents
Underwriters verify income, assets, credit, and debts. Expect to supply pay stubs or other income proof, traditional personal-income documentation where required, bank statements, your current mortgage statement, and homeowners insurance details. Self-employed borrowers should expect more.
Credit documents have an age limit. Fannie Mae wants them no more than four months old on the date you sign your loan documents. A slow file can age out and need refreshing. Keep it moving.
Step 4: Shop and Compare Offers
Ask more than one lender, and compare them on the same day for the same loan. Three is a sound minimum. You can also have a broker compare wholesale programs for you; a broker is paid either by the lender or by you, and that pay is disclosed on the Loan Estimate.
Apply, and the lender owes you a Loan Estimate within three business days once it has your name, income, Social Security number, property address, estimated value, and loan amount. Line the estimates up and compare the full terms: loan type, term, cash to close, and total costs. Focus on the whole sheet, not one headline figure.
A closing-cost promise needs a hard look. "No-closing-cost" offers don't erase costs; they build them into the rate or the balance.
Step 5: Get the Home Valued
Your new loan needs a value that supports the LTV. Often that means an appraisal. Sometimes automated underwriting offers an appraisal waiver, which Fannie Mae calls value acceptance. You cannot request one. The system decides, and the offer expires after four months. Per Fannie Mae's property valuation FAQs, on a refinance the value used is the estimate submitted by the lender or borrower. Two- to four-unit properties and certain other property types may still need a full appraisal.
A low value is the most common snag on this step. It cuts your equity and can push the LTV over the limit for your track. Your options are adding cash, reducing the loan amount, challenging the appraisal with better comparable sales, or waiting.
Step 6: Underwriting
This is where the file gets tested. The lender runs it through automated underwriting, confirms your income, assets, credit, and debts, and calculates DTI. Installment debts with only a few payments left may not count, but the Selling Guide controls that call.
Expect requests for more paperwork. Answer them the same day you can. Meanwhile, protect the file:
- Don't open new credit or finance a car.
- Don't change jobs without telling your loan officer.
- Don't move large, unexplained sums between accounts.
Step 7: Closing, Then the Cancellation Window
Three business days before closing, you must receive the Closing Disclosure. Compare it with your Loan Estimate line by line. Question any change you cannot explain.
At closing you sign the note and security instrument. The old lien gets paid off from the new loan's funds. Then comes something purchase buyers do not get: a right to cancel. On a refinance of your home, you have until midnight of the third business day after closing to rescind, according to the CFPB. Saturdays count as business days; Sundays and legal holidays do not. Funds are generally released after that window ends.
After that, confirm the old loan shows paid off, set up payments with the new servicer, and note the first payment date. If your old escrow account closes, a refund of the balance should follow.
Where the General Rule Breaks
The steps above hold for most files. These cases bend them.
A second lien. If the second mortgage financed your purchase, you can stay on the rate-and-term track. If it was a later HELOC or equity loan for other uses, the new loan is generally a cash-out refinance. If a second lien stays in place, its lender must agree to move behind the new first mortgage, and that approval is a common source of delay.
No mortgage at all. A new loan on a home with no existing lien is treated as a cash-out refinance.
Recently acquired homes. Rate-and-term rules generally exclude them, with exceptions for inheritance, divorce, legal separation, and trust beneficiaries. For cash-out, time in a revocable trust can count toward the six-month title rule if you are the primary beneficiary.
Texas homesteads. A cash-out on a Texas homestead is capped by the state constitution at the agency figure, and the wholesale lane that reaches 89.99% LTV is not written there. Final terms depend on lender guidelines, property type, leverage, and the borrower's complete credit picture.
Government loans. If your current loan is FHA or VA, streamline refinances exist for those loans. They are separate programs with their own rules.
Loan size. The conforming limit is a loan-amount ceiling, not a price cap. FHFA sets it and it varies by county. Above it, jumbo lanes take over, with a 660 decision score, leverage up to 90%, and a 50% ratio ceiling on the fixed lanes. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Can You Drop Mortgage Insurance Without Refinancing?
Often, yes. Mortgage insurance is required above 80% LTV. You can ask your servicer to cancel it once the balance is scheduled to reach 80% of the original value, provided you have a good payment history, no subordinate liens, and no decline in value. The servicer must end it automatically at 78%. Refinancing makes sense when your new value puts you under 80% LTV and cancellation on the old loan is not available.
There is also a cash-out lane at up to 89.99% LTV with no mortgage insurance, available at a 680 score and 50% ratio on a thirty-year fixed primary residence with a conforming balance. It carries its own six months of seasoning. Terms depend on the lender's guidelines, the property type, the leverage, and a full review of the credit profile.
A Realistic Scenario
Picture a homeowner who bought a one-unit primary residence three years ago with 5% down. Values rose, and the balance now sits near 78% of the home's value. They want to drop mortgage insurance and shorten the term. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
They are on the rate-and-term track, with plenty of room under the 95% cap. The break-even depends on closing costs and the monthly savings, so they run it first. If the cancellation conditions on the old loan are close to met, they might simply request cancellation and skip the refinance. The decision is math, not momentum.
What to Avoid
- Resetting the term without a plan to pay the loan off sooner.
- Rolling in costs without checking how the balance and LTV change.
- Refinancing again too soon, before earlier costs are recovered.
- Letting credit documents age past four months.
- Ignoring a prepayment penalty on the current loan.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
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.
Frequently Asked Questions
Can I refinance a conventional loan into another conventional loan?
Yes. It is the most common path. The new loan pays off the old one, and the track depends on whether you take meaningful cash out. Eligibility depends on equity, credit, DTI, occupancy, and any seasoning, all subject to lender guidelines.
How long do I have to wait before refinancing?
A rate-and-term refinance has no 12-month rule on the old loan. A cash-out requires the loan being paid off to be at least 12 months old and a borrower on title for 6 months, with exceptions for delayed financing, inheritance, and legal awards. Individual lenders may add their own waiting periods.
Will a refinance require an appraisal?
Not always. Automated underwriting may offer a waiver, but you cannot ask for one and it expires. Two- to four-unit homes and certain other property types may still need a full appraisal.
Can I cancel after I sign?
On a refinance of your own home, yes. You can rescind until midnight of the third business day after closing. A home purchase carries no such right.
Can I take cash out in a rate-and-term refinance?
Only a small amount. Agency rules cap incidental cash back at the greater of 1% of the new loan or $2,000. Beyond that, the loan becomes a cash-out refinance with its own limits.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Eligibility Matrix
2. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance
3. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance
4. Fannie Mae FAQs: Property Valuation
6. FHFA Conforming Loan Limit Values
This article is part of Lendmire’s conventional loan program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Refinance a Conventional Loan in the First Year of Owning? · Conventional Loan Refinance Signs for an ARM Near Its Adjustment · Homeready Requirements on a 2-4 Unit Conventional Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.