How to Refinance a Conventional Loan: Step-by-Step

Refinancing a conventional mortgage may lower your payment, reduce your rate, help you remove PMI, or shorten your repayment timeline. But many homeowners don’t realize how different a refinance is from a purchase — or how much control they have over pricing, timing, and lender competition.

This guide breaks down the exact steps, requirements, and best practices so you can refinance a conventional loan with clarity, confidence, and zero confusion.

Key Takeaways

• Many conventional refinances require a DTI of 45% or less and a solid credit score, but exact requirements vary by lender and individual financial profiles.

• You can refinance to lower your rate, remove PMI, or change your term.

• Rate-and-term refinances often have fewer requirements than cash-out refinances, but this varies by lender and individual financial profile.

• Lenders usually consider credit, income stability, equity, and payment history.

• Comparing Loan Estimates is the fastest way to save thousands.

💡 Pro Tip: When you apply for a refinance, your lender must issue a Loan Estimate within three business days. Upload that LE to Fincast to determine whether you have a competitive deal, or if vetted lenders have a better offer you may consider.

What Counts as a Conventional Refinance?

A conventional refinance replaces your existing non-government mortgage with a new one that meets Fannie Mae or Freddie Mac guidelines.

You can use it to:

• Lower your interest rate

• Reduce monthly payments

• Remove mortgage insurance

• Switch from adjustable to fixed rates

• Change your loan term

• Tap into equity through a cash-out refinance

Conventional refinances may offer competitive rates — the exact rates and underwriting requirements vary by lender and individual qualifications.

Conventional Refinance Requirements

While every lender is different, some common criteria include:

• Credit Score: 620+, exact requirements vary by lender, as some lenders may allow lower scores and others may require higher scores

• DTI: Preferably below 45%, but some lenders allow higher with strong compensating factors (e.g., high credit score, or large amounts of cash reserves)

• LTV: Typically up to 97% (80% for removing PMI), this varies by lender and individual qualifications

• Payment History: No 30-day late payments in the last 12 months

• Income: Stable, verifiable, and consistent

Cash-Out Requirements

Cash-out refinances generally require:

• 620–660 credit score is typical, but requirements vary by lender

• Max 80% LTV

• Consistent income and adequate reserves (the required amount varies by lender)

💡 Pro Tip: Even paying off a single small credit balance can lower your DTI enough to potentially improve your chances of approval or securing better pricing.

Step-by-Step: How to Refinance a Conventional Loan

Below is the Fincast-approved step-by-step framework — the same one lenders use behind the scenes.

Step 1: Define Your Goal

Before you start comparing lenders, decide what you want your refinance to accomplish.

Common goals include:

• Lowering your monthly payment

• Securing a better interest rate

• Removing PMI

• Shortening your loan term

• Getting cash out

Your goal determines your loan type, documentation, costs, and approval odds.

Step 2: Check Your Current Numbers

A few key metrics determine your refinance qualification:

A. Home Value (LTV)

LTV = Loan Amount ÷ Appraised Value

Lower LTV often means better pricing, but it varies by lender.

B. Debt-to-Income Ratio (DTI)

Most conventional refinances stay under ~45%, but exact numbers vary by lender.

C. Credit Score

Higher scores may lower your rate.

D. Payment History

A clean 12-month record is often strongly considered.

💡 Pro Tip: If your LTV is near 80%, refinancing may remove PMI — saving you hundreds per month.

Step 3: Request Your Initial Loan Estimate

Once you apply, lenders must provide a Loan Estimate (LE) within three business days.

Your LE includes:

• Interest rate

• APR

• Monthly payment

• Estimated closing costs

• Escrows and insurance

• Any lender fees

This is your comparison tool — and the single most important refinance document you'll receive.

Step 4: Compare Multiple Offers

Conventional pricing varies more than most homeowners expect.

Two lenders, same borrower → different rates, fees, MI costs, and assumptions.

Pay attention to:

• Interest rate

• APR

• Lender fees

• Credits vs. discount points

• PMI changes

• Cash-to-close differences

💡 Pro Tip: Compare lenders based on the total cost over 5 years, not just the rate.

Step 5: Lock Your Rate

Once you find the best offer, you’ll lock your interest rate for 30–90 days.

A rate lock protects your interest rate but not closing costs — these may change if circumstances change.

Step 6: Complete Underwriting

This is where your lender verifies documentation.

Most borrowers will provide:

• W-2s or tax returns

• Pay stubs

• Bank statements

• Homeowners insurance declarations

• Mortgage statements

Your lender might request additional documents based on:

• Income complexity

• Property type

• Credit history

• Cash-out purpose

💡 Pro Tip: Quick responses during underwriting can shave days off your timeline.

Step 7: Get Your Appraisal (If Needed)

Many conventional refinances require an appraisal — but not all; it depends on the automated underwriting findings and your lender’s requirements.

You may receive:

• Appraisal waiver (no appraisal needed)

• Hybrid appraisal (often a computer-based appraisal without visiting your home)

• Full appraisal (requires a visit to your home, inside and out)

Appraisal outcomes can affect:

• Loan amount

• PMI removal

• Eligibility

• Pricing

If the value comes in low, you may have options:

• Dispute inaccuracies

• Switch to a different lender

• Reduce the loan amount

• Change the loan program

Step 8: Review Your Closing Disclosure

Once underwriting is done, you’ll receive your Closing Disclosure (CD).

This document finalizes:

• Your rate

• Your payment

• All fees

• Total cash-to-close

You must receive the CD three days before signing — this is a federal rule, not a lender preference.

💡 Pro Tip: Compare your CD with your original Loan Estimate line by line. If the fees changed, ask what triggered the change.

Step 9: Sign Your Refinance Documents

At closing, you’ll sign:

• Final loan note

• Deed of trust

• Disclosures

• Any cash-out paperwork (if applicable)

For primary residences, you also get a 3-day right of rescission before the loan funds are disbursed.

Step 10: Your New Loan Funds

After the rescission period ends (or immediately for investment/second homes), your new loan funds and your prior mortgage is paid off.

You’re officially refinanced.

Common Mistakes to Avoid

Avoiding these can save you thousands — and days on your timeline.

1. Only getting one quote

This costs homeowners more than any other mistake.

2. Ignoring APR differences

APR reveals hidden fees.

3. Changing jobs during underwriting

Even a great new job can delay approval.

4. Taking on new debt

New loans can push your DTI over the limit.

5. Paying off debt before asking your lender

Some debts shouldn’t be paid off until after the application.

💡 Pro Tip: Never make major financial moves without first checking how they impact underwriting.

FAQs: Refinancing a Conventional Loan

1. What credit score do I need to refinance a conventional loan?

Most lenders require 620+, but the exact scores required vary by lender.

2. What DTI do I need to refinance?

Typically under 45%, though some lenders may allow a higher DTI with strong compensating factors (e.g., a high credit score or a low LTV).

3. Can I remove PMI with a conventional refinance?

Yes — if your new loan is 80% LTV or lower, you may be eligible to eliminate PMI completely.

4. Do I need an appraisal?

Sometimes. Many conventional borrowers receive appraisal waivers, but not all. It depends on the underwriting findings and lender requirements.

5. How long does a conventional refinance take?

Most close within 20–45 days, depending on appraisal, documentation, and lender capacity, but this varies by lender.

6. Is cash-out harder to qualify for?

Cash-out refinances require:

• Higher credit scores

• Lower LTV

• Strong income and reserves

But the exact requirements vary by lender.

7. Can refinancing increase my payment?

It can — especially if you shorten your term — but your total interest cost may still drop.

How Fincast Helps You Get the Best Conventional Refi Deal

Traditional mortgage shopping is confusing because rates change daily, and lenders calculate DTI, MI, and pricing differently.

Fincast makes refinancing transparent:

1. Upload your Loan Estimate securely.

2. Fincast benchmarks your deal using verified pricing data.

3. Vetted lenders anonymously compete to beat your offer.

4. You choose the best deal — no spam, no extra credit pulls.

Even a small rate improvement may save thousands over the life of your loan, but your exact savings depend on your loan size and term.