Credit score for refinance is a key factor to get you qualified and estimate the total cost. It influences how much interest rate you may secure. A mortgage borrower with high credit score typically receives lower rates. However, those with low credit scores get higher rates when refinancing their mortgage.
Required Credit Scores For Refinance
Credit scores for refinance highly depends on the type of loan you apply for and the lender’s requirements. Mostly, your loan-to-value ratio determines the credit score required in order to qualify. Loan-to-value ratio pertains to the financing amount you need versus the value of property.
Below are the minimum credit scores for each loan program. Some lenders could increase them to lessen any risks that may be involved.
| LOAN PROGRAM | MINIMUM CREDIT SCORE REQUIRED |
|---|---|
| Conventional Loan (rate-and-term; cash-out) | Credit score of 620-720. However, this still depends on your DTI ratio, LTV, and how much you have in cash reserves. |
| FHA Loan (streamline) | No credit check required |
| FHA Loan (rate-and-term) | Credit score of 500 when your new loan comes with 90% or less LTV. Credit score of 580 when your new loan comes with over 90% LTV. |
| VA Loan (VA IRRRL & Cash-out) | No specific minimum |
| USDA Loan | No specific minimum, however, you need to prove your ability to handle debt. |
EXPLORE YOUR HOME GOALS TOGETHER.
Conventional Loan
Conventional loan allows you to do cash-out refinance or rate-and-term refinance.
Rate-and-term refinance changes either your loan term, interest rate, or it could be both. Typically, it requires mortgage borrowers at least 620 credit score as long as you have a 75% or less loan-to-value ratio, at least two months of cash reserves in the bank, and a debt-to-income ratio of below 36%.
Failure to meet the abovementioned criteria could mean stricter requirements. Credit score will be 720 if you have a higher DTI or LTV or no cash reserves.
The maximum LTV on a conventional rate-and-term refinance is 95%.
On the other hand, cash-out refinance allows you to borrow more than you currently owe and cash-out for home improvement, repairs, or any expenses you might be dealing with.
A minimum credit score of 640 is required with a 75% or less LTV ratio, at least 6 months in cash reserves, and 36% or lower DTI ratio.
However, if your DTI or LTV is higher than the prior requirements, or you have insufficient cash reserves, credit score requirement will be 700.
The maximum LTV on a conventional cash-out refinance is 80%.
FHA Loan
Three options are available for FHA loan. They are streamline refinance, rate-and-term refinance, and cash-out refinance.
Streamline refinance, compared to other refinancing options, is generally quicker and requires less documentation. If you are looking into a no-closing-cost refinance, FHA loan can be a good option.
Take note that the below credit scores are just minimum scores set out by the Department of Housing and Urban Development. Lenders could basically increase the minimum scores. An appraisal may no longer be required on these loans.
FHA loan rate-and-term refinance > requires a credit score of 500 to 580. A credit score 500 works if your LTV ratio is 90% or lower. Otherwise, a 580-credit score is required.
FHA loan cash-out refinance > requires a credit score of 500 to 580. The maximum LTV ratio is 95% given that you owned the home for at least 12 months. Otherwise, you are limited to an 85% LTV.
VA Loan
The options for homeowners with VA loans are VA Interest Rate Reduction Refinance Loan (VA IRRRL) or VA cash-out refinance. Either of the said options has no minimum credit score required, however your lender may set specific requirements. Also, you will have to comply to the VA’s military service requirements to qualify for these loans.
VA IRRRL > This type of loan is similar to FHA streamline refinance with a quick and painless process, lower rate, and reduced monthly payments.
VA IRRRL loans do not have official minimum credit score. However, you need to prove the current VA loan and certify that you are living in the home. A credit check may be required if your refinance increases by 20% or more.
VA Cash-out Refinance > No official minimum credit score is required for this type of loan. However, you still need to provide a certificate of eligibility and certify that you live in the home. An appraisal will be required in order for you to borrow up to 100% of the home’s appraised value.
USDA Loan
USDA loan may be both refinanced in streamlined and non-streamlined ways. Total debt and credit score will be both used in assessing your eligibility even if there’s no actual minimum credit score required.
Out of all the above-mentioned loans, streamlined-assist loans do not require credit check at all. The lenders freely institute credit score minimum they deem appropriate. You are also required to live in the home as your primary residence and meet certain income limitations.
