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Do I need a certain credit score to refinance my mortgage?

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    There are often several requirements that must be met before a borrower can refinance their home. For example, some mortgages have a set period before you're allowed to apply for refinancing or adjust your mortgage. And just like taking out the original loan, there are other qualifications related to the borrower's financial profile — like falling within a certain credit score range. If you’re worried your credit score may impact your ability to refinance, there may be a few ways to still do so.

    What is a credit score?

    Your credit score is a three-digit number that’s calculated based on your credit history. Credit scores range from 300–850 and can be categorized from poor to excellent. Your credit score represents your creditworthiness — the extent to which a lender considers someone suitable to receive a loan, often based on how reliable they might be to pay it back. Suffice it to say, your credit score carries some weight when applying for a loan, but it’s not the only thing that determines your loan eligibility. Before diving in, you may want to check your credit score to know where you stand.

    What credit score is needed to refinance my mortgage?

    There is no one-size-fits-all approach when it comes to what credit score you need to refinance your mortgage because it depends on the lender and what type of refinance you’re looking to do. The credit score required for a conventional loan refinance, for example, may look different than the credit score required for an FHA or VA loan refinance. In addition to your credit score, there are other factors that may help support your loan candidacy.

    Typically, it’s a combination of the following:

    • Amount of home equity you’ve built up, also known as your loan-to-value ratio – the appraised value of a property versus the mortgage amount 
    • Significant asset reserves

    Although these other factors aren’t guaranteed to help you refinance with a low credit score, they may support your application.

    Ways to refinance with a lower credit score

    People with low credit scores may initially find it difficult to find a refinancing option that works for them. If you find yourself in this situation, speak with your current lender. They may work with you to come up with an action plan or recommend exploring some of the following:

    Conventional conforming refinance

    The ability to refinance and keep a conventional loan may be difficult with a lower credit score because conventional loans require good to great credit scores to both borrow and refinance. Speak with your current lender about your options. You may also consider refinancing your conventional loan for an FHA loan if you qualify.

    FHA rate and term refinance

    FHA rate and term refinances are often worth investigating if your credit score has taken a hit. This changes your loan term and interest rate, which can help you save money. This type of refinancing also accepts lower credit scores than conventional mortgages.

    FHA streamline refinance

    FHA streamline refinances are for people who already hold FHA loans and would like to refinance to lower their interest rate or reduce their loan’s term length with less documentation and fewer costs than a traditional refinance transaction. FHA streamline refinances don’t have a minimum credit score requirement, but they do have requirements related to mortgage repayment history on the loan being refinanced. In some instances, lenders may require additional credit requirements above and beyond what’s required by the FHA, though this isn’t typical for this particular program.

    VA loan refinance

    If you currently have a VA loan and continue to meet the eligibility qualifications, a VA loan streamline refinance — also known as an Interest Rate Reduction Refinance Loan (IRRRL) — may be an opportunity to explore.

    According to the VA, you may be eligible for an IRRRL if you meet the following requirements:

    • You already have a VA loan, and
    • You’re using the IRRRL to refinance your existing VA loan, and
    • You can certify that you currently live in or used to live in the home covered by the loan.

    Overall, VA loans typically carry lower credit score requirements and offer competitive rates compared to FHA and conventional loans. The VA refinance program includes an IRRRL as well as 100% cash out refinance options.

    The program may lower your monthly mortgage payments through lower interest rates or can move your loan from an adjustable to a fixed interest rate.

    Improving your credit score

    As you shop around for different ways to refinance with a lower credit score, consider working to improve your credit score over time and then applying for a loan refinance in the future.

    In summary

    The credit score needed to refinance a house depends on the lender and the type of refinance you’re looking to do. If you’re worried about your credit score affecting your eligibility, there are other strategies that are worth investigating. Consider speaking with your current lender to see what options may be available to you.

    Take the first step and get preapproved.

    Have questions? Connect with a home lending expert today!

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