Everything You Need to Know About Conforming Loan Refinance and Cash-Out Refinance
If you have a conforming loan and are considering refinancing, you may be looking for ways to lower your monthly payments, secure a better interest rate, or tap into your home’s equity with a cash-out refinance.
Conforming loans follow Fannie Mae and Freddie Mac guidelines, making them one of the most common mortgage options. When refinancing a conforming loan, homeowners can choose between a rate-and-term refinance or a cash-out refinance to meet their financial goals.
This guide will cover:
✔ What is a Conforming Loan Refinance?
✔ What is a Cash-Out Refinance for a Conforming Loan?
✔ Eligibility Requirements for Conforming Loan Refinancing
✔ How to Qualify for a Conforming Cash-Out Refinance
✔ Pros and Cons of Refinancing
✔ The Step-by-Step Refinancing Process
✔ FAQs About Conforming Loan Refinancing
By the end of this guide, you’ll be able to make an informed decision about refinancing your conforming loan to achieve financial benefits.
What is a Conforming Loan Refinance?
A conforming loan refinance replaces an existing conforming mortgage with a new loan that meets Fannie Mae and Freddie Mac guidelines. The primary reasons homeowners refinance a conforming loan include:
- Lowering the interest rate to save on monthly payments
- Shortening the loan term (e.g., from 30 years to 15 years)
- Switching from an adjustable-rate mortgage (ARM) to a fixed-rate loan
- Eliminating private mortgage insurance (PMI) if enough equity has been built
This type of refinance does not involve taking out additional cash—it simply replaces the existing mortgage with new terms.
What is a Cash-Out Refinance for a Conforming Loan?
A cash-out refinance is a refinancing option that allows homeowners to borrow more than they currently owe on their mortgage and receive the difference in cash.
Example of a Conforming Cash-Out Refinance
- Home Value: $400,000
- Current Mortgage Balance: $200,000
- New Loan Amount: $300,000 (75% Loan-to-Value)
- Cash Received: $100,000 (minus closing costs)
💰 This $100,000 can be used for home renovations, debt consolidation, tuition, or other financial needs.
Since conforming loans have loan limits set by Fannie Mae and Freddie Mac, homeowners must ensure that their cash-out refinance loan does not exceed conforming loan limits (more on this below).
🔎 Need help finding a lender? Get connected with top lenders on Browse Lenders®.
Eligibility Requirements for Conforming Loan Refinancing
To refinance a conforming loan, homeowners must meet the following criteria:
1. Credit Score Requirements
✔ Rate-and-Term Refinance: Minimum 620+ credit score
✔ Cash-Out Refinance: Minimum 640+ credit score
💡 If your credit score is low, visit MiddleCreditScore.com for tips on improving it before applying.
2. Loan-to-Value (LTV) Ratio
✔ Rate-and-Term Refinance: Up to 97% LTV allowed
✔ Cash-Out Refinance: Typically, 80% LTV max
💡 Example: If your home is worth $300,000, a lender may allow you to borrow up to $240,000 (80% LTV) with a cash-out refinance.
3. Debt-to-Income (DTI) Ratio
✔ Most lenders require a DTI of 43% or lower
✔ Some lenders allow up to 50% DTI with strong compensating factors
4. Employment & Income Verification
✔ Must show at least two years of stable employment and income
✔ Acceptable income sources include salary, self-employment, rental income, and investments
How to Qualify for a Conforming Cash-Out Refinance
If you’re looking to cash out equity, you must meet additional requirements:
✅ Own the home for at least six months before refinancing
✅ Have at least 20% equity in your home
✅ Demonstrate ability to repay with strong credit and stable income
✅ No recent bankruptcies or major delinquencies on your credit report
Pros and Cons of Refinancing
✅ Pros of Conforming Loan Refinancing
✔ Lower Interest Rate – Save thousands over the life of the loan
✔ Reduced Monthly Payments – Free up more cash for other expenses
✔ Shorter Loan Term – Pay off your mortgage faster
✔ Fixed-Rate Stability – Switch from an ARM to a fixed-rate loan
✔ Access Home Equity – Use cash from your home for major expenses
❌ Cons of Conforming Loan Refinancing
❌ Closing Costs – Typically 2%-6% of the loan amount
❌ Longer Loan Term – Extending the mortgage term may increase total interest paid
❌ Risk of Foreclosure – Borrowing more than you can afford puts your home at risk
Step-by-Step Refinancing Process
📌 Step 1: Determine Your Financial Goals
- Lower payment? Shorter term? Cash-out equity?
- Check credit score, home equity, and current mortgage terms.
📌 Step 2: Compare Lenders and Get Pre-Approved
- Work with a lender on Browse Lenders® to compare offers.
- Review interest rates, closing costs, and loan terms.
📌 Step 3: Submit Your Loan Application
- Provide financial documents:
✔ Pay stubs
✔ Tax returns
✔ Bank statements
✔ Debt and asset information
📌 Step 4: Home Appraisal & Loan Underwriting
- The lender will order an appraisal to determine your home’s value.
- The underwriter reviews your financials for loan approval.
📌 Step 5: Close the Loan
- Sign final paperwork and pay closing costs.
- Receive funds (for cash-out refinance) in 3-5 days after closing.
FAQs About Conforming Loan Refinancing
1. How much cash can I take out with a refinance?
✔ Most lenders allow you to cash out up to 80% of your home’s value.
2. How long does a conventional refinance take?
✔ Typically, 30-45 days from application to closing.
3. Can I refinance with bad credit?
✔ Yes, but you may need a higher interest rate or compensating factors like strong income. Check your credit at MiddleCreditScore.com.
4. Are there closing costs with a refinance?
✔ Yes, closing costs range from 2%–6% of the loan amount. Some lenders allow you to roll costs into the loan.
5. When is the best time to refinance?
✔ When interest rates are lower than your current rate or when you need access to equity for major expenses.
Final Thoughts: Is Refinancing Right for You?
A conforming loan refinance or cash-out refinance can help homeowners lower payments, access equity, or adjust loan terms to meet financial goals.
🔎 Ready to explore refinancing options? Connect with top lenders at Browse Lenders® to get personalized loan offers today! 🚀