It is common to wonder what type of FICO score you need to refinance your mortgage today. Fortunately, lending standards have eased in the past five years, so you may be able to qualify with a lower credit score to refinance than before. In 2018 it is crucial to understand that most refinance programs have minimum fico score requirements. There are still a few that have limited or no fico score requirements for mortgage refinancing this year and we will elaborate on the specifics later in this article.
Generally, most lenders will require you to have a FICO score of at least 620, but it will depend upon the type of loan program you choose. Loans that are backed by the Federal Housing Administration or FHA may have lower minimums, but the specific lender could have higher requirements than FHA’s. The good news is if you qualify for a streamline refinance through FHA or VA, you do not have to worry about credit scores as much.
Below is more information about the type of FICO score you may need to refinance under various loan programs.
FHA Refinance Programs
FHA mortgage refinancing is usually the easiest of all refinances. If you are pulling out cash, you will need to have your credit and income checked, with a credit score in the low 600s usually required to complete the deal.
However, one of the major benefits of an FHA loan is you can do the streamline refinance, if you only want to get into a lower rate without pulling out cash. A streamline refinance generally does not require any particular credit score, and the lender will usually not check your income either. It is possible the lender could check them, but a low credit score generally will not prevent you from refinancing an FHA loan.
If you want to replace your non-FHA loan with a new FHA loan, expect to need a credit score of 580 or higher. Some FHA-approved lenders may have higher FICO requirements. If you are in the high 500’s or low 600’s, be prepared to do some loan shopping with various lenders to get approved. Check to learn about the minimum credit score for a FHA loan is with your credentials.
VA Refinancing Programs
If you already hold a VA mortgage, you have the opportunity to do a VA streamline refinance through the VA. It works very much like an FHA streamline refinance, but with even lower interest rates. This refinance does not generally require a credit check or minimum FICO score. But as with FHA loans, the specific lender can require higher FICO standards.
If you want to refinance into a VA loan and do a cash out loan, most recognizable lending companies will need to have a 620 minimum FICO score. Check VA loan credit requirements today.
Conventional Mortgage Refinance Options
Conventional loan refinances will vary on their required FICO scores. But you will usually find requirements in the range of 620 to 680, depending upon the lender. Keep in mind that the best rates to refinance on conventional loans are usually for people with 740 or higher scores. Also remember that all conventional loans must be fully documented; there is no option for a streamlined refinance on conventional loans. This means you need to have bank records, pay stubs and tax returns to qualify.
Skin in the Game Is Needed
It is easier to qualify for a refinance now than five years ago in terms of FICO score, income and debt to income standards. But you will need to have at least 20% equity in many cases before you can qualify for most refinances. But if you want to do a refinance with less equity, you can with private mortgage insurance. Note that how much you pay for mortgage insurance depends upon your credit score.
Tips to Improve Your Credit and Raise Fico Scores
It will always help to raise your FICO score, even if you are doing an FHA or VA streamline refinance. If you are going to do a refinance in the next year, below are some simple tips to make the path smoother:
- Pay all of your bills on time. It is especially important to make certain that no bill is paid 30 days late. If you have 30 day late payments on your credit report, this will lower your score in a big way. It is especially important to not have late payments on your mortgage or car loans.
- Pay down as much debt on credit cards as you can. It is best to have your credit usage no more than 30% of your limits. This will raise your score quickly once you pay off excessive debt.
- Do not have any more credit inquiries than necessary on your credit report, and none is best. The more you inquire about new credit, the more it will lower your score.
Takeaways on Mortgage Fico Score Rules for Refinancing in 2018
Refinancing your mortgage into a lower rate, and possibly pulling out cash, is easier than it used to be. If you are just refinancing without pulling out cash, the credit score requirements are pretty flexible, especially if you are working on a VA or FHA refinance.
If you are pulling out cash, you will need to have a score at least in the low to mid 600s to get the deal done.
Whatever your score, you can still get the best deal by checking with several lenders. For starters, go to a mortgage broker, a bank and a credit union to compare rates.
References: FICO Score Needed to Refinance House. Retrieved from http://homeguides.sfgate.com/fico-score-need-refinance-house-7481.html