What credit score do I need to refinance?


Mortgage rates are still low by historical standards, but are expected to rise throughout the year, so if you haven’t refinanced yet, now is the time to explore your options for lowering your monthly payments. It’s not just about applying for a refinance to take advantage of low rates, but you also need to be able to qualify for the loan with the right credit rating.

What is the credit score requirement to refinance?

  • Conventional refinancing: 620
  • Jumbo refinancing: 720 or higher
  • FHA refinancing: 580
  • VA refinancing: No minimum VA credit, but 620 is common
  • USDA Refinance: No USDA credit minimum, but 640 is common

The credit score you need to refinance depends on the mortgage lender you work with and your personal situation. In general, it is possible to do a conventional mortgage refinance with a credit score of 620, and FHA refinances are usually feasible for those with a credit score in the mid-500s.

However, “minimum credit scores vary widely depending on general credit conditions in the residential mortgage market,” says Matt Hackett, director of mortgage operations at Equity Now, a New York-based direct lender.

The type of refinancing you do, as well as your debt-to-income ratio (DTI), can also influence the level of credit you need.

“As a rule of thumb, if you have between 620 and 639 credit scores, you’ll need a DTI of less than 45%,” according to Ben Allred, a loan originator with Waterstone Mortgage in Gilbert, Arizona. “However, if you don’t have a good FICO score, you may be able to be approved through a non-traditional credit program.”

Even with a lower DTI ratio, you might need to improve your credit score if you want to do a special type of refinance, such as a cash-out refinance.

Ultimately, it can be difficult to figure out exactly what credit score you need unless you apply and the lender can look into your situation, Hackett says.

How to refinance your mortgage if you have bad credit

Your lowest score from the credit bureaus will likely be used for qualifying purposes, says Allred. Since each credit reporting agency may give you a different score, you might have a wide variation. As a result, many mortgage lenders pull scores from all three bureaus and then base your qualification on the lowest.

If you have poor credit, knowing where you stand in advance can help you determine how to improve your score and overall creditworthiness as a borrower. Here are some strategies for refinancing if your credit needs work:

  • Boost your credit score: Improve your credit utilization rate by striving to pay down debt so you’re using less than 30% of your available credit, Allred and Hackett suggest. Also start or continue paying your bills on time. While you’re preparing for refinancing, Hackett recommends a quiet period of no credit checks in the 90-120 days before applying, and having a few lenders lined up so the inquiries they generate all happen within a short period of time. time, reducing the impact on your score. .
  • Offsetting the risk: A bad credit rating may not prevent you from refinancing if you have so-called “compensating factors”, such as a lower loan-to-value (LTV) ratio or cash reserves.
  • Refinance with your current lender: Your current lender is invested in keeping your business, so they might be willing to look at your application holistically and consider factors other than your credit score.
  • Explore FHA, VA or other options: Consider moving away from a conventional refinance and instead opt for an FHA or VA refinance program, if you are eligible. FHA and VA refinances generally have looser credit requirements. You can also look for a lender with experience in other, more flexible refinance products.
  • Find a non-occupying co-signer: Your refinance application might be stronger if you apply with a cosigner — someone who doesn’t live in your home but who will accept financial responsibility if you fail to repay your loan. The key is that the co-signer must have good credit and a low DTI ratio. Although you still need to work on your credit (because the lender will make a decision based on all borrowers’ lower credit scores), having a co-signer can help.

How to get the best refinance rate

While improving your credit score is the best way to get the best refinance rate, there are ways to get a better rate even after you’ve processed your credit. Keep the following in mind, suggests Allred:

  • Work on a lower loan-to-value (LTV) ratio – If you can keep your LTV ratio lower by avoiding a cash-out refinance and ensuring you have a higher amount of equity, you can lower your mortgage rate.
  • Avoid refinancing a condo – Condos often have higher refinance rates, Allred points out, even if you have a good credit rating. A single family home is likely to get a lower rate.
  • Refinance a main residence – In general, the refinancing of a loan on a principal residence is accompanied by a lower rate than that of the refinancing of an apartment building.

At the end of the line

If your credit needs work, refinancing your mortgage may be more difficult, but not impossible. There are many strategies you can use to improve your credit and get a lower rate.


About Author

Comments are closed.