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Home Refinance Options in 2022
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With home values on the rise and mortgage rates still at historic lows, there may still be financial benefits to refinancing your home in 2022. Whether you’re looking to lower your rate, shorten your loan term, ditch mortgage insurance, make renovations or tap equity, you have several home refinance options to choose from.
Which home refinance option is right for you?
Choosing the right refinance for you is more than just picking the lowest interest rate — it’s also about matching the right program to your finances. The table below gives you a snapshot of the basic requirements for the most common refinance programs before we dive into the details:
| Type of refinance | Credit score minimum | Maximum LTV | Maximum DTI | Special requirements/perks |
|---|---|---|---|---|
| Conventional Rate and term | 620 | 97% | 45% to 50% |
|
| Conventional cash-out refinance | 620 | 80% | 45 to 50% |
|
| Conventional renovation refinance | 620 | 97% | 45% |
|
| Conventional HARP alternative | N/A | May not have more than 3% equity | N/A |
|
| FHA rate-and-term refinance | 500 | 97.75% | 43% with exceptions possible |
|
| FHA streamline refinance | N/A | N/A | N/A |
|
| FHA cash-out refinance | 500 | 80% | 50% |
|
| FHA 203(k) refinance loan |
| 97.75% | 43% |
|
| VA rate and term refinance | No guideline minimum * | 100% N/A for VA streamline | 41% with exceptions possible |
|
| VA interest rate reduction refinance loan (IRRRL) | N/A | N/A | N/A |
|
| VA cash-out refinance | No guideline minimum* | 90% | 41% with exceptions possible |
|
| USDA streamline | N/A | N/A | N/A |
|
| USDA regular refinance | No guideline minimum ** | 100% | 41% with exceptions possible |
|
*Many VA lenders set their minimum score requirement at 620
**Many USDA lender set their minimum score requirement at 640
13 home refinance options to choose from
We’ve compiled some of the most common conventional and government-backed refinance loan options for you to review before you apply for your refinance.
Conventional home refinance options
Conventional loans are non-government mortgages with rules set by Fannie Mae and Freddie Mac. One advantage of conventional refinance loans is you don’t need mortgage insurance if you have at least 20% equity. There are four basic conventional loan options:
- Conventional rate-and-term refinance. A rate-and-term refinance allows you to lower your payment or shorten your term. You only need 3% equity to qualify, but you’ll pay mortgage insurance if you borrow more than 80% of your home’s value.
- Conventional cash-out refinance. You can borrow more than you currently owe and pocket the remaining cash with this type of refinance. An added bonus: You can tap equity on a vacation home or investment property.
- Conventional renovation refinance. The HomeStyle® Renovation Mortgage and Freddie Mac CHOICERenovation® Mortgage are conventional fixer-upper loans that allow you to refinance and renovate your home at the same time.
- HARP replacement refinance. You may be eligible to refinance a Fannie Mae- or Freddie Mac-serviced loan with a HARP replacement loan, even if your loan balance exceeds your home’s value. The programs usually don’t require income verification or an appraisal, and you may qualify as long as you’ve made no more than one late mortgage payment in the last 12 months.
FHA home refinance options
Loans backed by the Federal Housing Administration (FHA) offer more lenient qualifying standards. However, that flexibility comes with a cost in the form of more expensive mortgage insurance. There are two types of FHA mortgage insurance — an upfront mortgage insurance premium of 1.75% paid as a lump sum, and an annual mortgage insurance premium of 0.45% to 1.05%, which is divided by 12 and added to your monthly payment. This insurance is payable on all FHA refinance options listed below.
- FHA rate-and-term refinance. You can finance up to 97.75% of home’s value with an FHA rate-and-term refinance. There is a catch, though: You’ll need a credit score of at least 580 to borrow more than 90% of your appraised value.
- FHA streamline. If you’ve paid your current FHA loan on time, you may qualify for an FHA streamline refinance. You won’t need to prove your income or get an appraisal. However, make sure you budget for closing costs: You can’t roll them into the loan amount.
- FHA cash-out refinance. Borrowers with credit scores as low as 500 may be able to tap equity of up to 80% of their home’s value. Note that you’ll pay FHA mortgage insurance regardless of how much equity you have.
- FHA 203(k) refinance. The FHA 203(k) loan program offers both a limited and standard option for financing the cost of home repairs or upgrades with the flexibility of FHA lending guidelines. The limited program sets a $35,000 rehab dollar limit, while the standard program is better for more costly renovation projects.
VA home refinance options
The U.S. Department of Veterans Affairs (VA) guarantees refinance loans made to eligible current and retired military servicemembers and surviving spouses. Unlike FHA and conventional loans, VA refinance loans never require mortgage insurance. Instead, a VA funding fee of up to 3.6% is paid by VA borrowers to defray the cost of the program to taxpayers.
Available VA refinance programs include:
- VA rate and term refinances. You can finance up to 100% of the value of your home with a rate and term refinance. You can also replace an FHA or conventional loan with a new VA loan to get rid of mortgage insurance.
- VA interest rate reduction refinance loan (IRRRL). Like the FHA streamline, the VA IRRRL doesn’t require income or value verification. However, the current VA loan must have been paid on time the past seven months, and the costs have to be recouped within 36 months. This is called a “break-even point,” which is calculated by dividing your total costs by expected monthly savings.
- VA cash-out refinance. VA homeowners can borrow up to 90% of their home’s value with a VA cash-out refinance. However, you will spend a little more on a VA home appraisal compared to a conventional or FHA appraisal.
THINGS TO KNOW
If you want to add some energy-saving home improvements, you may be able to finance them with an energy-efficient mortgage (EEM). A variety of “green mortgage” programs are available, though the allowance will vary depending on whether you choose a conventional, FHA or VA loan.
USDA home refinance options
The U.S. Department of Agriculture (USDA) guarantees refinance loans for low- to moderate-income homeowners with current USDA loans. Although mortgage insurance isn’t required, USDA lenders collect an upfront guarantee fee of 1% that’s usually rolled into the loan, and a 0.35% annual fee that’s divided by 12 and added to your monthly payment.
The following are the most common USDA refinance options:
- Streamline Direct. As long as you’ve had your current USDA loan for 12 months and can save $50 on your monthly payment, you may qualify for a USDA streamline direct refinance. No income verification or appraisal are required.
- Regular USDA refinance. Similar to the VA rate-and-term refinance, the USDA regular refinance program allows qualified USDA borrowers to finance up to 100% of their home’s value. However, you’ll need to document your income and pay for a home appraisal.
The USDA doesn’t offer a cash-out refinance program.
Other home refinance options
If you have more specialized refinance needs that the programs above don’t meet, there are some alternative home refinance options worth considering:
- Piggyback refinance. A piggyback loan involves taking out two mortgages at the same time. It can come in handy to avoid mortgage insurance on a conventional refinance or refinance out of a jumbo loan.
- Reverse mortgage. If you’re 62 or older, a reverse mortgage allows you to borrow home equity without making payments on the loan balance.
- Non-QM refinance. Short for non-qualified mortgage, a non-QM refinance may work if your income doesn’t fit standard loan parameters orif you’ve just experienced a major credit event like a bankruptcy or foreclosure.
- Jumbo refinance. If your loan amount exceeds the loan limits for conventional financing, check your local bank or local bank for jumbo refinance options.
- HELOC/HEL refinance. If you’re happy with the rate on your first mortgage, but want to save on your home equity loan or home equity line of credit (HELOC), find out if there are refinance options at your local credit union or bank.
- No-cost refinance. You may see lenders advertise for no-cost refinances, but they should really be called “no out-of-pocket cost” refinances — the lender just charges a higher rate and pays the costs on your behalf.
How to get the best mortgage refinance rates
To get the best mortgage rates, always request loan estimates from at least three to five lenders on the same day. Focus on the lender fees and be sure to ask them if they have any refinance specials. Once you choose the lender with the best rates, confirm that your rate is locked and keep track of the expiration date to avoid any costly extension fees.
How much does it cost to refinance?
You’ll normally pay between 2% and 6% of your loan amount toward closing costs. You can usually roll the closing costs into the loan amount, or ask the lender about their low- or no-cost options. Ask the lender if you’re eligible for an appraisal waiver on conventional rate-and-term refinance loans if you have at least 20% equity.
FAQs about home refinance options
Should I refinance my mortgage? You should refinance your mortgage if there’s a financial benefit and you can recoup the cost before you sell your home.
What do I need to refinance my home? If you’re not eligible for any government-backed streamline refinance programs, the lender will verify your credit, income, assets and home value in the same manner as when you bought your home.
What documents do I need to refinance my home? For streamline programs you’ll typically just need to provide proof that your current mortgage is paid on time. For rate-and-term, cash-out and renovation programs, you’ll document all your finances and have a new appraisal done to update your home’s value.
How long does it take to refinance a house? According to the Sept. 2021 ICE Mortgage Technology report, the time to close for conventional, FHA and VA refinance loans was:
- 43 days for conventional refinance loans
- 50 days for FHA refinance loans
- 48 days for VA refinance loans