What Credit Score Do You Need to Refinance Your Mortgage?
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While the required credit score to refinance a mortgage varies by loan program, most loan types require a minimum of 620 to qualify for a refi. Lenders tend to offer lower refinance interest rates to borrowers who have higher credit scores. Ensuring your credit is in top shape before refinancing is critical to snagging competitive rate offers.
What’s the required credit score to refinance your mortgage?
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Your eligibility for a home refinance depends on your credit score and several other factors. Two key items to be mindful of are your:
- Debt-to-income (DTI) ratio, which is the percentage of your gross monthly income used to make debt payments
- Loan-to-value (LTV) ratio, which is the percentage of your home’s value being financed by your mortgage
The type of mortgage program you use for your refinance also plays a role in eligibility requirements.
Rate-and-term refinance minimum credit score
When refinancing a single-family home, the minimum credit score needed to refinance a conventional loan depends on your DTI and LTV ratios. For example:
- The minimum credit score is 680 for borrowers with an LTV ratio above 75%, and a maximum 36% DTI ratio. If you have a maximum 45% DTI ratio, the credit score minimum jumps to 720.
- The minimum credit score is 640 for borrowers with an LTV ratio below or equal to 75%, and a maximum 36% DTI ratio. If you have a maximum 45% DTI ratio, you’re required to have a minimum 680 credit score.
Your lender may require you to have mortgage reserves ranging from two to six months’ worth of expenses if your credit score is between 620 and 680. You’re also responsible for paying closing costs and for private mortgage insurance (PMI) — if your LTV ratio hasn’t dropped below 80% at the time of your refinance.
The minimum credit score required for a rate-and-term refinance on a home loan backed by the Federal Housing Administration (FHA) depends on your LTV ratio.
- The minimum credit score is 580 for borrowers with a maximum 97.75% LTV ratio.
- The minimum credit score is 500 for borrowers with a maximum 90% LTV ratio.
Besides standard closing costs, you’ll also pay upfront and annual FHA mortgage insurance premiums.
The U.S. Department of Veterans Affairs (VA) doesn’t impose a minimum credit score for its rate-and-term refinances, but it’s common for VA lenders to require a minimum 620 credit score.
You’ll also pay closing costs and fees.
Cash-out refinance minimum credit score
A cash-out refinance allows you to replace your existing mortgage with a new loan that has a larger amount and take the difference between the two in cash. Here are the credit scores needed for a cash-out refi on a single-family home with a conventional loan:
- The minimum credit score is 680 for borrowers with an LTV ratio above 75% and a 36% maximum DTI ratio. If your DTI ratio is between 37% and 45%, you’ll need a 700 credit score.
- The minimum credit score is 660 for borrowers with an LTV at or below 75%, and a 36% maximum DTI ratio. The score minimum is 680 for those with a maximum 45% DTI ratio.
The maximum LTV ratio allowed on a conventional cash-out refinance is 80%, which means you need at least 20% equity. You’ll also pay closing costs and fees.
Similar to rate-and-term refis, requirements for an FHA cash-out refinance are more lenient than those for conventional loans. The minimum credit score is 500, and the maximum LTV ratio allowed is 80%. Closing costs and mortgage insurance requirements also apply to cash-out refis.
There is no minimum credit score for a VA cash-out refinance, but lenders typically require at least a 620 credit score. The maximum allowed LTV ratio is 90%. Standard closing costs and fees also apply to this type of VA loan.
Can you refinance a mortgage with bad credit?
You can refinance with bad credit, or no credit in some cases. Here are a few loan programs for credit-challenged homeowners:
Streamline refinance requirements
FHA streamline refinance
The FHA streamline refinance program is for existing FHA borrowers. With this type of refinance, a full credit check may not be required. There’s also less paperwork involved and no home appraisal requirement. You’ll still pay closing costs, but they’ll be lower than a standard refinance.
VA interest rate reduction refinance loan
The VA’s interest rate reduction refinance loan (IRRRL) is a streamline refinance program for existing VA borrowers. There’s no credit score requirement, and you won’t need to provide income documentation or pay for an appraisal. You’ll still be responsible for closing costs, including a VA funding fee equal to 0.5% of your loan amount.
USDA streamlined assist refinance
The U.S. Department of Agriculture (USDA) streamlined assist refinance program is reserved for current USDA borrowers. Lenders won’t require a credit review and, in most cases, there’s no appraisal requirement.
High-LTV refinance requirements
Fannie Mae and Freddie Mac, the two major government-sponsored enterprises that buy and sell mortgages from lenders, offer refinance programs for borrowers with high loan-to-value (LTV) ratios. A high LTV ratio is considered 97.01% or higher. There’s no minimum required credit score to refinance under either program, but they’re both exclusive to conventional borrowers with Fannie Mae- or Freddie Mac-owned mortgages.
How to get a better credit score
Before you refinance your mortgage, you’ll want to do everything possible to get your credit score in shape. The following tips can help you get there.
- Keep tabs on your credit score. Knowing your credit score will help you determine your eligibility for a refinance, and checking your credit score won’t hurt your credit. Remember, a good credit score for a mortgage refi doesn’t mean you need perfect credit.
- Dispute credit report errors. When you look at your credit report, you may find information you don’t recognize. Dispute any inaccurate or false data with any of the three major credit bureaus — Equifax, Experian and TransUnion.
- Make all payments on time. Your payment history makes up the biggest chunk of your credit score at 35%. The more on-time payments you have on your credit report, the better your credit score will be.
- Avoid closing accounts. Closing old credit accounts won’t help your credit score, and it may actually hurt it. Even if you’re not using old credit cards, keep those accounts open to help your credit history length, which accounts for 15% of your score.
- Pay down non-mortgage debt. Another important factor in your credit score is your credit utilization ratio, which is the percentage of the credit you’re using relative to your available credit. Paying down each credit card balance to below 30% of your available credit can improve your credit utilization ratio and credit score. For other debts, such as auto, personal or student loans, make extra payments to shrink your balances sooner.
- Don’t open any new accounts. New credit inquiries can hurt your credit score. Plus, too much new debt can earn you the reputation of a high-risk borrower. If you’re considering opening a new credit account, wait until after your mortgage refinance is completed.