With mortgage interest Near historical lows, many homeowners have the option to refinance their mortgages and cut their monthly payments. However, it’s not just a matter of applying for a refinance to take advantage of low rates, you should also be able to qualify for the loan with the correct credit score.
🎬📺 Free Movies and Free TV Shows! 🎭🎬
What is the required credit score to refinance?
The credit score you should refinance depends on the mortgage lender you work with and your individual situation. In general, it is possible to do a conventional mortgage refinance with a credit score of 620, and FHA refinances are usually doable for those with credit scores in the mid-500s.
However, “credit score minima vary widely with general credit terms in the residential mortgage market,” explains Matt Hackett, mortgage operations manager at Equity Now, a New York-based direct lender.
“The pandemic brought with it a rapid rise in minimum scores [them] to 660 or 680 as investors feared a wave of defaults, ”says Hackett.
The type of refinance you do, as well as your debt-income (DTI) ratiocan also affect how high a credit score you need.
“Typically, if you have a credit score between 620 and 639, you need a DTI of less than 45 percent,” said Ben Allred, a lender at Waterstone Mortgage in Gilbert, Arizona. “However, if you don’t have a good FICO score you may be able to get approved through a non-traditional credit program.”
Even with a lower DTI ratio, you may need to improve your credit score if you want to do a special type of refinance, such as a payout refi
Ultimately, it can be difficult to determine exactly what credit score you need unless you sign up and the lender can assess your situation, Hackett says.
How to Refinance Your Mortgage When You Have Bad Credit
Your lowest score from the credit reporting agencies will likely be used for qualification purposes, Allred explains. Since each credit rating agency can assign you a different score, you could have a great deal of variation. As a result, many mortgage lenders pull scores from all three bureaus and base your rating on the lowest.
Knowing where you stand in advance can help you figure out how to do it improve your score If necessary.
To boost your score, both Allred and Hackett suggest improving your credit utilization ratio by paying off your debt so that you’re using less than 30 percent of your available revolving credit. Also keep paying all your bills on time, Hackett adds.
“Another way to maintain your credit score is to limit your queries for the 90 to 120 days before you apply for a mortgage,” says Hackett. “As you prepare to submit an application, have a few lenders line up so that the questions they generate all happen within 15 to 30 days. This will merge the questions into one mortgage application, which is one less has a major effect on your creditworthiness. “
If you have bad credit, you may need to find ways to offset the extra risk.
“If you have a lower loan-to-value ratio, or if you have cash in reserves, it can help a borrower with a lower score qualify for a refinance,” says Allred.
Moving away from a conventional refinance and considering an FHA or VA program, if you qualify, can also provide more flexibility.
“Right now, the market has loosened up as we recover from the pandemic,” Hackett said. “FHA refinance loans are now available up to about 600, even though you will likely pay more.”
Finally, it can be helpful to partner with a lender who has a range of refinancing products, increasing your chances of qualifying even with a lower score.
“Borrowers with a lower credit score should apply to a lender who has access to multiple product options,” says Hackett. “That way they get the best chance of getting a loan.”
How to Get the Best Refinance Rate
While improving your credit score is the best way to do it get the best refinancing rate, there are some ways to get a better rate even after you’ve addressed your credit. Keep the following in mind, Allred suggests:
- Work on a lower loan-to-value (LTV) ratio – If you can keep your LTV ratio on the low side by avoiding a cash-out refinance and making sure you have more equity, you can lower your mortgage rates.
- Avoid refinancing a condo Condos often come with higher refinance rates, Allred points out, even if you have a good credit score. A single family home is likely to yield a lower rate.
- Refinancing for a primary residence – Generally, refinancing a primary residence loan has a lower rate than if you were refinancing one for an investment property.
Plus, see if you can find a family member to sign with, Hackett recommends. If your credit score is too low for a good refinance rate, or you have no reserves to convince a lender to give you a good rate, cosigning can help you qualify.
Find out more:
🎬📺 Free Movies and Free TV Shows! 🎭🎬