Refinancing A Mortgage? What Credit Score Is Required

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refinanceyourhome

The refinance process may be the best way to lower your mortgage interest rate or lower monthly payments. Typically, a refinance application will depend on your credit score, just as it did when you got your first mortgage.

You may, however, be able to refinance even if your credit is poor, since some government programs may not require a specific credit score or requirement.

Here are some things you should know if you plan on refinancing your mortgage.

How Important Is a Credit Score When Refinancing?

A credit score helps lenders determine whether a borrower is a risky borrower and whether they will be able to repay the loan. Using the FICO formula, credit scores are calculated between 300 and 850. The following credit scores are commonly used:

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  • A score of 800 or higher is exceptional
  • A score between 740 and 799 is very good
  • A score between 670 and 739 is excellent
  • A score between 580 and 669 is FAIR
  • A score less than 580

If your credit score is lower than your goal, some lenders or programs may still be able to refinance your mortgage even with good or excellent credit.

Refinancing a home requires a minimum credit score?

Here is a list of types of loans available to you.

Borrowing money conventionally

In order to refinance, the credit score must fall between 620 and 720 (depending on the loan type and lender).

The majority of home loans are conventional mortgages, which are issued by banks, credit unions, and other lenders. These loans are then purchased by federal government-sponsored entities such as Fannie Mae and Freddie Mac.

Getting a loan from the FHA

For refinance, you need a credit score of at least 500 (based on your lender).

Mortgages insured by the Federal Housing Administration (FHA) are issued by approved lenders. Compared to conventional mortgages, these loans are easier to qualify for, making them a good option for borrowers with lower credit scores or low down payments.

Loans from the VA

No specific minimum credit score is required for refinancing, though most lenders require a 620 credit score or higher.

VA provides assistance to servicemembers, veterans, and surviving spouses who are eligible to buy a home. VA loans are not provided by the government directly; private lenders offer them, backed by the Veterans Administration.

Loan from the USDA

There is no specific credit score for refinancing, but most lenders will want a score of at least 640.

Rural borrowers can purchase homes with down payment-free loans offered by the U.S. Department of Agriculture (USDA). USDA lenders provide these loans, which are guaranteed by the USDA.

With bad credit, can you refinance your mortgage?

If you have bad credit, refinancing your home may be difficult, but it’s not impossible. Take a look at these options:

  • Get in touch with your current lender
  • Check the VA refinance program
  • FHA refinancing is also an option
  • Finding a co-signer

The rule of thumb doesn’t apply to everyone

It depends on the lender you work with, the type of loan you have and any government programs that you are applying for how much it costs to refinance a mortgage.

Consider contacting as many lenders as possible in order to compare your options. This way, you will find a loan that meets your needs more easily.

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