What Credit Score Do You Need to Refinance a Mortgage?

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Mortgage rates are currently hovering around historic lows, making this an attractive time to refinance your mortgage. Even if mortgage rates rise slightly in the coming months, they should remain favorable for long term homeowners. Depending on your current loan terms, refinancing your mortgage may present an opportunity for you to lock in some long…

Mortgage rates are currently hovering around historic lows, making this an attractive time to refinance your mortgage. Even if mortgage rates rise slightly in the coming months, they should remain favorable for long term homeowners. Depending on your current loan terms, refinancing your mortgage may present an opportunity for you to lock in some long term savings or pay off your mortgage more quickly. So let’s take a look at what you need in order to refinance your mortgage, starting with your credit score.

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What Credit Score do You Need to Refinance a Mortgage?

Whether you are refinancing a VA Loan or a traditional mortgage, one of the most common questions homeowners face when looking to refinance their mortgage is what credit score they need to qualify for a refinance loan. Unfortunately, the answer isn’t as easy as the question. Typically lenders look at several factors before they determine your loan eligibility.

Due to the recession and the problems in the real estate market, many lenders have changed their requirements for refinance loans. Along with a good credit score, lenders will require that you own a certain amount of equity in your home, you have a manageable level of debt (they will want to examine your debt to income ratio), and a strong credit history. Let’s take a look at some of the requirements and what you can do to qualify for a loan.

Good credit score. The minimum qualifying credit score will vary by lender, but you should assume that you will need a credit score in the top ranges to qualify for the best rates. Your credit score is based on the history found in your credit report. Thankfully, you can take steps to improve your credit score if your score doesn’t quite qualify for a refinance loan. In fact, it is a good idea to start on the process before you apply – it can only improve your odds of approval. Also keep in mind that being approved for a mortgage can affect your credit score.  If you have not applied for a loan yet and are worried about your number, try a MyFICO free trial to get your most current scores and credit information.

Home equity. Home equity is the amount of your home that you have paid for. For example, if you have a home worth $200,000 and you have paid off $40,000 of the mortgage, then you would have 20% home equity. 20% equity also represents the minimum amount of home equity many lenders require when approving a refinance loan. This isn’t a hard and fast rule, however, and you may be approved for a refinance with less than 20% equity, particularly through some government sponsored programs that were initiated after the mortgage bubble burst.

Debt to income ratio. Your debt to income ratio is an important indicator to lenders because it gives them a sense of how much more debt you can handle. Typically, the lower the debt to income ratio, the better. Your debt to income ratio represents the percentage of the monthly gross income that goes toward paying your fixed expenses such as debts, taxes, fees, and insurance premiums. Again, there is no hard and fast rule for debt to income ratio, and the required number can vary by lender.

Credit history. Your credit history is generally viewed by lenders as a way to gauge future performance. A long and clean credit history is much more favorable than someone with a few marks on their credit report. But don’t let a few bad marks stop you from applying for a refinance loan, particularly if some time has passed since the problems occurred. The more time between your loan application and the bad marks on your history, the better.

What to Do if Your Mortgage Refinance Application is Declined

There are many reasons why a lender might decline your refinance application, and if yours is declined, ask the lender. This information can help you take the necessary steps to increase your credit score, fix your debt to income ratio, increase your home equity, or take other necessary steps to improve your chances of approval on your next mortgage application. In addition, a new law will soon require lenders to give you a free credit score when your loan application is declined. This information can be helpful in determining your next steps.

Find current mortgage rates on our site, or visit LendingTree.com to see what your refinancing options are.



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About Ryan Guina

Ryan Guina is the founder and editor of Cash Money Life. He is a writer, small business owner, and entrepreneur. He served over 6 years on active duty in the USAF and is a current member of the IL Air National Guard.

Ryan started Cash Money Life in 2007 after separating from active duty military service and has been writing about financial, small business, and military benefits topics since then. He also writes about military money topics and military and veterans benefits at The Military Wallet.

Ryan uses Personal Capital to track and manage his finances. Personal Capital is a free software program that allows him to track his net worth, balance his investment portfolio, track his income and expenses, and much more. You can open a free account here.

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  1. Rick B says

    OK. I have paid off all of my past debts and only have a car loan and a credit card that is also current and paid off each month. How long will it take to raise my score from 582 to a much higher score?

    • Ryan says

      Rick, it depends on many factors, including your debt to income ratio, your credit history, and other factor. That said, you are on the right track and your credit score should start improving if you continue on this path.

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