Mortgage 101

Mortgage Refinance Requirements

Published on: November 19, 2021

Borrowers who meet mortgage refinance requirements have the opportunity to switch to a better home loan. If interest rates have dropped or your home value has increased, refinancing can result in a lower interest rate, reduced monthly payment, or a shorter loan term — all of which can save thousands of dollars over the life of your mortgage.  

To qualify, you’ll need to meet specific mortgage refinance requirements for your loan type. Additionally, your lender may have its own mortgage refinance requirements in place. 

What do you need to refinance your home?

When applying for a mortgage refinance, you must meet mortgage refinance requirementsHome refinance requirements vary depending on the type of loan you’re applying for.  

Like purchase loans, conventional refinance requirements (for non-government loans) are typically stricter than government mortgage refinance requirementsFHA refinance requirements for loans insured by the Federal Housing Administration and VA loan refinance requirements for loans guaranteed for military borrowers by the U.S. Department of Veterans Affairs are more forgiving if you don’t have a high credit score or if you have blemishes on your credit history. Additionally, refinance programs such as the VA interest rate reduction refinance loan (IRRRL) and some FHA streamline refinance programs don’t typically require a credit check or home appraisal. 

If you meet the qualifications to refinance your home, the process replaces your current loan with a brand new mortgage. The refinance loan pays off the existing mortgage, and you’ll make payments on the new loan. In many cases, the refinance loan is with a new lender, although some borrowers refinance with their existing lender. 

We’ll further explore mortgage refinance requirements, including both government and conventional refinance requirements. Keep in mind that lenders may have their own mortgage refinance requirements in addition to the established refinance requirements for each loan program.

Finance of America Mortgage Advisor can inform you of the exact home refinance requirements for the loan you’re interested in.

Credit score requirements for refinancing a home

Your credit score will play a role in the refinance process, as it did when you initially took out your mortgage. Depending on the loan type you’re applying for, you may need a minimum credit score to refinance

Additionally, some lenders may impose their own credit score qualifications to refinance your home. For example, VA loans don’t have a minimum credit score set by the VA to refinance, however, many VA lenders look for a minimum credit score of 600 or higher.  

In addition to indicating your risk as a borrower, your credit score will also affect your interest rate on the refinance loan. Here’s a look at minimum credit score mortgage refinance requirements: 

Minimum credit score refinance requirements 
Conventional loans  VA loans  FHA loans 
620  None (but many VA lenders look for a score of 600 or higher)  500* (no credit checks for some streamline refinances) 

*Although the FHA program’s minimum score is 500, many lenders have a higher minimum FICO score for FHA loans.

Home equity and LTV requirements for refinancing

Two important requirements for refinancing a mortgage relate to the value of your home: your home equity and your loan-to-value ratio.

Home equity refers to the amount or portion of your property that you own outright. To calculate your home equity, subtract what you owe on your mortgage from the home’s value. For example, if your home’s current value is $400,000 and you have a $300,000 balance on your mortgage, you have $100,000 or 25% equity.  

Related to your equity is your loan-to-value (LTV) ratio. Lenders place a limit on how much of your available equity you can access by imposing maximum LTV refinance requirements. These limits reduce the chances of going underwater in your mortgage and protect the lender from lending more than your home is worth should the value of your property drop. LTV ratios also determine the amount you can borrow above your mortgage balance in the case of cash-out refinances.

To calculate your LTV ratio, divide your mortgage balance by the value of the home. In our example above of a $400,000 home with a $300,000 mortgage, the homeowner has a 75% LTV ratio.  

To qualify for a mortgage refinance, you’ll need to have enough equity in your home and meet your lender’s loan-to-value ratio refinance requirements. 

Maximum loan-to-value (LTV) ratio refinance requirements 
Conventional loans  VA loans  FHA loans 
97% (80% for cash-out refinances)  100% (no LTV limits for VA IRRRL)  97.75% (80% for cash-out refinances; no LTV limits for streamline refinances) 


Debt-to-income requirements for refinancing a mortgage

One of the requirements for refinancing a mortgage you’ll need to meet is your lender’s maximum debt-to-income (DTI) ratio. This ratio represents what percentage of your income is going toward debt payments. Lenders look at your DTI ratio because it signals whether you’re capable of meeting all of your debt obligations. A high DTI ratio shows you may be overcommitted and might be unable to handle all your payments. 

To calculate your DTI ratio, add up your monthly debt payments and divide the total by your monthly gross (pre-tax) income. For example, if your monthly debt payments total $1,500 and your monthly income is $5,000, your DTI ratio is 30%. Debt-to-income requirements for mortgage refinances depend on the loan type and may vary by lender as well.

Maximum debt-to-income refinance requirements 
Conventional loans  VA loans  FHA loans 
45% (higher DTI ratios permitted in some cases)  41% (higher DTI ratios permitted in some cases; no DTI limits for VA IRRRL)  43% (higher DTI ratios permitted in some cases) 


Documents needed for refinancing a home

The refinancing documents needed will depend on your loan type and your lender’s specific mortgage refinance requirements. Generally, expect to provide information about your job history, income, assets, and the property you’re refinancing.

Checklist for refinancing a mortgage

It’s best to gather your financial information as soon as you know you want to refinance. Doing so will ensure you’re ready and can provide the information as quickly as possible.

Here’s a document checklist for refinancing a mortgage. As your lender processes your loan, they may request additional information.

  • Pay stubs for the last 30 days 
  • W-2 forms for the last two years 
  • Federal tax returns for the last two years
  • Proof of other income sources 
  • Bank statements for the past two months 
  • Identification 
  • Proof of assets and liabilities
  • Details on the existing loan and property 
  • Social Security number 
  • Certificate of Eligibility (VA loans)

What to do if you don’t meet mortgage refinance requirements

If you fail to meet one or more of your lender’s mortgage refinance requirements, they may not approve you for the loan. In many cases, you can take steps to address the issue and improve your chances of meeting the lender’s refinance requirements the next time you apply. 

Here are some common scenarios that can lead to a mortgage refinance denial: 

  • Your credit score is too low. If your credit score is below your lender’s minimum credit score to refinancefocus on increasing it by making all your payments on time and keeping your credit usage low. 
  • Your DTI ratio is too high. If you fail to meet your lender’s debt-to-income requirements for a refinance mortgage, focus on paying down some debts or increasing your income to lower your DTI ratio. 
  • Your LTV ratio is too high. If your home’s value doesn’t meet your lender’s mortgage refinance requirements, you may need to apply for a different loan type that allows a higher LTV ratio or does not have LTV limits. Alternatively, you could delay the refinance until you’ve paid down more of your mortgage or your home’s value increases. Using a refinance calculator can help you estimate when your LTV ratio is low enough. 
  • You have a derogatory credit event in your history. If you have a significant financial event in your past, such as a foreclosure or bankruptcy, you’ll need to go through a waiting period before you can meet your lender’s mortgage refinance requirements. Your specific waiting period will depend on the type of loan you’re applying for and what led to the event.

    Here’s a look at the waiting period for some common derogatory credit events:

    • Bankruptcy: two to four years 
    • Short sale: two to four years 
    • Foreclosure: three to seven years 

Trying to decide whether now is a good time to refinance? Talk to a local Finance of America Mortgage Advisor to learn more about your options.

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