To qualify for a conventional cash-out mortgage refinance, homeowners must meet certain guidelines set by the individual lender. These guidelines may vary depending on the lender and the specific refinance program being offered, however the following are the most adhered to in the industry:

• An underwriter will review your employment history and income to ensure that you have a stable financial situation and the ability to repay the new loan Homeowners will need to demonstrate consistent income which is sufficient to make their monthly mortgage payments. This will include providing pay stubs, W-2s, tax returns, bank statements and other potential financial documentation.

• Borrowers will need OK or better credit scores to qualify for a conventional refinance. While specific credit score requirements can vary depending on the lender, a score of 620 is considered the starting point, and the higher your credit score the more favorable terms and interest rates you are likely to receive.

• Homeowners will need to have enough equity in their home to qualify for a conventional rate and term mortgage refinance. This means that the value of the home must be greater than the outstanding balance on the mortgage. Conventional refinance loans require homeowners to have 20% equity in their home, thus the new loan cannot exceed 80% of the home’s appraised value. If one’s Loan to Value (LTV) is higher, they might be required to pay private mortgage insurance (PMI) or take other steps to reduce the LTV.

• Your Debt-to-Income Ratio (DTI) is a measure of your monthly debt payments compared with your gross monthly income. Lenders typically look for a DTI of 45-50% or lower, so homeowners will need to have a debt-to-income ratio that is within the qualifying range in order to qualify for the desired loan amount.

• A positive mortgage payment history without any late mortgage payments within the past 12 months will be required and will improve your ability to qualify for a conventional rate and term refinance.

• A conventional cash-out refinance loan can be used on a primary residence, second home or investment property.

• A new property appraisal is often required to determine the current value of the home, as the appraised value plays a crucial role in calculating the Loan to Value and may affect the loan terms. However during the underwriting process, there are situations where an appraisal waiver may be granted, eliminating the expense and necessity of obtaining a conventional appraisal report.

• Lenders may have specific rules about how you can use the cash-out proceeds. Common acceptable uses include debt consolidation, home improvements, or other major expenses. Using the funds for risky investments may not be permitted.

• Some lenders may require a “seasoning period,” which means you must have owned the property for a certain amount of time before you can do a cash-out refinance. This period can vary but is typically six months to a year.

Guidelines are subject to change, and specific lenders may have different requirements and loan products. Always consult with a mortgage professional to understand the exact guidelines and options available to you based on your unique financial situation and the current lending environment.