According to the experts at Fox Business, the link between your credit score and the mortgage refinance you’ll qualify for will depend on many factors. What kind of loan are you looking to refi into? 30 Year Fixed? 15 Year? 10? And who will your lender be?
Many experts are pointing to LendGo as one of if not the absolute best place to lock in the lowest refi rates possible. With historically low rates currently dipping under 2%, the time to refinance your mortgage has never been better.
Here’s where you and your credit score come into the picture. Your lender is going to look to your credit score to establish your ability and track record of repaying debts. This is why it’s so important to ensure your credit score is as high as possible prior to applying for your new mortgage.
A Matter of Rates and Terms
Beyond achieving loan approval, you’ll also want to lock in the lowest interest rate possible, along with a term that makes sense for you. A 30 Year mortgage is going to provide lower monthly payments, whereas a 15 or 10 Year term will result in higher payments, but a quicker payoff along with substantially less interest paid over the life of the loan. Making the total cost of your mortgage less expensive.
When it comes to refinancing, there isn’t one singular answer as to what your credit score needs to be. The kind of loan, and the lender themselves will come heavily into play here. Other pertinent details include your loan-to-value ratio, or LTV, the property type, and more.
As a general rule, credit score requirements tend to look something like this:
- Conventional Loans (both cash-out refinance and rate and term): 620-720
- FHA Loans: If LTV is under 90%, a 500 credit score can work. If it’s over 90%, you’ll need a 580 score. For FHA streamlined loans, no minimum score is required.
- VA loans fall into the same category as FHA streamlines, with no minimum score requirement.
- And finally USDA loans also have no minimum score requirement, although you must exhibit the ability to manage debt.
Credit Score Isn’t the Be-All, End-All
Despite each specific loan type having their own credit score criteria, your approval will depend on more than just credit score. Your new loan’s LTV (loan-to-value ratio), your personal payment history, and your DTI (debt-to-income ratio) will all play pivotal roles as well.
When it comes to FHA loans, whether we’re talking about cash-out refinances or rate-and-term refis, your loan will be issued by a third-party lender while being insured by the FHA. This is going to permit lower credit score requirements (sometimes with no minimums at all).
If you’re looking to do an FHA rate-and-term refinance, a credit score of at least 500 will be required (as long as the LTV is under 90%). If the LTV exceeds that threshold, the credit score requirement jumps to 580. Cash-out refinances executed under FHA guidelines limit homeowners to LTV ratios under 80%.
Improve Your Score to Lock In the Lowest Rate
It may sound like a monumental task, but the truth is there may be some low hanging fruit here for you to attack to ensure you lock in the lowest refinance rate you can. Any lower balance credit cards you may have lingering around… pay them off asap and watch your credit score jump substantially.
Specialty lenders who offer exceptionally low rates are out there. LendGo, for example, has an extremely positive track record of helping homeowners step into mortgage refinances with lower monthly payments than pretty much anyone out there.
If you have questions or need guidance as to how to get started, just reach out to a refi rate comparison platform like LendGo and you’ll get all the answers you need. They can point you in the right direction to help you make your refinance dreams a reality for decades to come.