finances

What Credit Score Do You Need to Refinance Your Mortgage?

Tom BurchnellReviewed by

Refinancing your mortgage requires you to have your finances in order, which includes maximizing your credit score. Even if you already qualify for a mortgage refinance, a higher credit score can lower your interest rate. The credit score that you will need to refinance a mortgage will depend on the type of mortgage in addition to other factors.

Overview

Mortgage lenders generally require loan applicants to have a minimum credit score to qualify. A credit score of 620 is the baseline to qualify for most mortgages, although the requirement is highly dependent upon the type of mortgage. For example, conventional mortgage lenders may require a minimum score in the range of 620 to 720. A Federal Housing Administration (FHA) loan may require a score of 500 to 580, while 620 is the minimum credit score needed for a Veterans Affairs (VA) loan.

Mortgage lenders consider credit score in conjunction with other factors when deciding whether to approve an application for a refinance. Debt-to-income (DTI) ratio and loan-to-value (LTV) ratio are two of the most important of these. DTI is the total value of your debt payments divided by your total income over a given time, while LTV is the amount of the mortgage divided by the home's fair market value. Both of these ratios are typically multiplied by 100 to express them as a percentage.

Conventional loans

For a mortgage refinance on a single-family home, a conventional lender typically requires a minimum credit score of 680, assuming the borrower has a DTI no greater than 36 percent and an LTV of more than 75 percent. The minimum score increases to 720 for a DTI above 36 percent but not greater than 45 percent and an LTV greater than 75 percent. The minimum credit score for borrowers with an LTV ratio less than or equal to 75 percent and a maximum DTI ratio of 36 percent is 640.

A lender may require you to have cash reserves equal to two to six months of payments if your credit score is between 620 and 680. You’ll also need to pay for mortgage insurance if your LTV is 80 percent or greater, regardless of your credit rating.

FHA loans

The minimum credit score required for an FHA loan depends on your LTV ratio. A score of 580 is sufficient for an LTV ratio as high as 96.5 percent, while a score of 500 is acceptable for a LTV of up to 90 percent. You also will need to pay for mortgage insurance up front in addition to the annual premiums.

VA loans

VA lenders typically require a minimum credit score of 620, although the U.S. Department of Veterans Affairs has no minimum requirement. You also will need to pay fees and closing costs for VA loans.

Tom Burchnell
Product Marketing Director

Tom Burchnell, Director of Digital Product Marketing for EasyKnock, holds an MBA & BBA in Marketing from University of Georgia and has 6 years of experience in real estate and finance. In his previous work, he spent time working with one of the largest direct lenders in the SouthEast. 

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