What credit rating is needed to refinance?
The minimum credit score to refinance varies by lender and type of loan. For example, you need a minimum credit score of 580 to refinance an FHA loan or 620 to refinance a conventional loan. But some lenders might set a higher minimum of, say, 600 for FHA or 640 for conventional.
Keep in mind that the better your credit score, the lower your new interest rate will be. So while it’s possible to refinance with a credit score as low as 580 or 600, the best rates generally go to homeowners with a credit score of 720 and above.
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Credit score to refinance by type of loan
You probably won’t need a high credit score to refinance. But the actual threshold you will face will depend on three main elements:
- Your type of loan (compliant, government or jumbo)
- The type of refinancing (cash-out or no-cash-out)
- Your mortgage lender
Here are the typical credit score minimums for each refinance program. Keep in mind that lenders may set their own requirements and some may require a higher score than what you see below.
Conventional Loan Refinance Credit Score Requirements
To refinance a conventional conforming loan, you generally need a credit score of 620 or higher. This is true for refinancing with or without collection (“rate and duration”).
Conventional refinancing of FICO score minimums
- Conventional rate and term refinancing: 620
- Refinancing by conventional collection: 620
If you’re hoping to do a cash refinance, you’ll also need a lot of home equity, as lenders require you to leave 20% of your equity in the home. after the refund amount. You can learn more about how cash-in refinancing works here.
Conventional refinance rates are highly dependent on your credit score. So while you can refinance a conventional loan with a credit score of 620 or higher, you’ll get a better interest rate with a score above 720.
FHA Refinance Credit Score Requirements
Technically, you can refinance an FHA loan with a credit score as low as 500. But it’s very difficult to find lenders who allow such low scores. In practice, you generally need a credit score of 580 or higher for an FHA refinance.
FHA cash-out refinancing requires a higher credit rating; usually 600-620 or more.
FHA refinances FICO score minimal
- FHA rate and term refinancing: 580
- Refinance by FHA collection: 600-620
Note that with FHA Streamline refinance, lenders are not officially required to check your credit score. But many will do it anyway to ensure that you are financially sound.
VA Refinance Credit Score Requirements
The Department of Veterans Affairs does not set a minimum credit score for the VA loan program. But many lenders set their own minimum of 580 to 620 to qualify for a VA loan refinance.
VA cash-out refinancing is more variable. It may be possible to qualify with a score of 580-620, but some lenders require credit scores of up to 680 or higher for a VA cashout refi.
VA refinance FICO score minimal
- VA refinancing rate and duration: 580-620
- VA Collection Refinance: 580-680
Note that with VA Streamline Refinance (VA IRRRL), lenders are not officially required to check your credit score. But many will do it anyway to ensure that you are financially sound.
USDA Refinance Credit Score Requirements
The USDA lending program only offers rate and term refinancing; no cashing is allowed. You will generally need a credit score of 620-640 for a USDA refinance.
USDA refinances FICO score minimal
- USDA refinance at rate and term: 620-640
Like the FHA and VA loan programs, the USDA offers a simplified refinance option that reduces the financial checks and documentation required for the refi.
Jumbo Loan Refinance Credit Score Requirements
Jumbo loans are not regulated by any central agency. This means mortgage lenders can set their own jumbo loan requirements. For a jumbo loan refinance, you can usually expect to need a credit score above 700, maybe 720 or even 740.
Jumbo Loan Refinance FICO Score Minimums
- Jumbo refinancing at rate and term: 700-740
- Jumbo cash-out refinancing: 700-740
Remember that these minimums vary by lender. So look for a mortgage company that can help you get a low rate based on your credit score.
How Does Credit Score Affect Refinance Rates?
Your credit score doesn’t just impact your refinance approval. It also affects the interest rate lenders will offer you. All things being equal, a high score should get you a lower rate while a bad credit score means you’ll pay more for your refinance loan.
You can use FICO’s Loan Savings Tool to give you a rough idea of how your credit score affects your mortgage rate and monthly payments. In turn, this will have a big impact on your total interest charges over the life of the loan.
We show an example below using a 30-year fixed rate mortgage with a loan amount of $400,000.
|Credit score range||APR*||Monthly payment||Total interest paid (30 years)|
*Annual percentage rates reflect the national average according to FICO.com on April 26, 2022. Interest rates change daily and the rates shown here do not reflect the rate you will be offered.
Is it possible to refinance with bad credit?
Yes, many people refinance with bad credit. It’s usually easier to refinance with bad credit if you’re do not withdraw money and if you plan to use a government guaranteed loan program. FHA, VA, and USDA loans all have lenient credit ratings to refinance.
If your existing mortgage is an FHA, VA, or USDA loan, things are even easier. This is because you can use a Streamline refinance. With this low-doc program, lenders are technically not required to check your credit score or credit history (although many do anyway).
Regardless of the current loan type, anyone can refinance an FHA loan. Because this program only requires a FICO score of 580 to qualify, it’s the most common option for refinancing with bad credit.
Just note that FHA loans have drawbacks, including ongoing mortgage insurance premiums (MIP). These can usually only be removed by refinancing into a conventional loan, for which you will need a credit score of 620 or higher.
Increase your credit score to save more on your refinance
If you have a lower credit score, it might be difficult to refinance. Even if you qualify, bad credit usually results in higher rates, which often means refinancing isn’t financially worth it.
But raising your credit score by just a few points before refinancing can be a big help.
This is because most lenders use credit score “bands” or “tiers” to determine the refinance rate you will be offered. For example, a “good credit score” might be between 700 and 720. So you don’t need to go all the way to 720 to get a better rate; you just need to get above 700.
If your credit score is currently slightly below 700 (or at the top of another credit level), you may be able to lower your rate and achieve significant savings by raising it just a few points.
Tips to improve your credit score before refinancing
Perhaps the fastest way to improve your credit score is to keep your credit balances below 30%. Check all your credit card and store card balances, pay them below 30% if you can, and make sure you keep them there. This lowers your “credit utilization rate”, which has a huge impact on your credit score.
Here are some other tips to increase your FICO score:
- Order a free copy of your credit reports from AnnualCreditReport.comlook for errors and correct them if necessary
- Keep paying all your bills and debts on time
- Don’t open or close credit accounts or finance major purchases in the months before you refinance
- Ask your mortgage lender for a “quick rescore”, which can tell you how to improve your score
Since scoring models vary from credit bureau to credit bureau, it may be a good idea to ask your lender for help when trying to increase your score. Mortgage lenders usually have simulators and tools that work within the parameters of each office and can tell you exactly what to do to increase your scores.
For more details on this, as well as other tips, read: How to Quickly Increase Your Mortgage FICO Score.
Even if you don’t have the best credit rating to refinance now, you might have one soon.
The information contained on The Mortgage Reports website is provided for informational purposes only and does not constitute advertising for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent company or affiliates.