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What credit score is needed to refinance my mortgage? – Forbes Advisor

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If you’re looking to get better terms for your mortgage, like a lower interest rate or lower monthly payment, refinancing might be a good option. Like when you applied for your first mortgage, your credit score will usually be a determining factor in whether you’ll be approved for a refinance.

However, some government programs accept lower credit scores or have no specific credit requirements, which means you may be able to refinance even if your credit is poor.

If you’re wondering what credit rating you need to refinance your mortgage, here’s what you need to know.

What is a good credit score for refinancing?

Your credit score is a number used by lenders to determine your riskiness as a borrower and your ability to repay your loan. FICO is the most popular credit scoring model and operates on a scale of 300 to 850. Here are the ranges commonly used to decide what a good credit score is:

  • Exceptional: 800 or more
  • Very well: 740 to 799
  • Good: 670 to 739
  • Fair: 580 to 669
  • Poor: Below 580

While good or excellent credit can help you get approved for a mortgage refinance more easily, keep in mind that borrowers with lower credit scores might still qualify with some lenders or through the through specific programs.

What credit score do I need to refinance?

The exact credit score you’ll need will vary depending on the lender, the type of loan, and your financial situation. Remember that your credit will affect the type of mortgage refinance rate you will be offered. In general, the higher your credit score, the better your rate will be.

Here’s what you can expect, depending on the type of loan you choose.

Conventional loan

Minimum credit score to refinance: 620 to 720 (depending on loan type and lender)

Conventional mortgages make up the majority of all home loans and are issued by banks, credit unions and other lenders. These loans are then typically sold to government-sponsored entities like Fannie Mae and Freddie Mac.

Refinancing a conventional mortgage loan offers several options:

  • Rate and term refinancing. If you want more favorable terms, such as a better interest rate or lower monthly payments, on your existing mortgage, you can do so through a rate and term refinance.
  • Refinancing by collection. Unlike a rate and term refinance, which simply replaces your old mortgage with a new loan with new terms, a pull-out refinance allows borrowers to tap into the equity in their home. You’ll take out a new mortgage with more loan money than you owe on your home, and you’ll receive the difference as a lump sum to use as you wish, minus closing costs.

FHA loan

Minimum credit score to refinance: 500 or higher (depending on lender)

Federal Housing Administration (FHA) loans are issued by approved and FHA-insured lenders. These loans are easier to obtain than conventional mortgages, making them a useful option for borrowers who have lower credit scores or cannot afford a large down payment.

There are a few types of FHA refinance, including:

  • Streamline refinancing. This option is available to borrowers who already have an FHA loan and requires less documentation and underwriting compared to conventional refinancing. In some cases, you may not have to submit to a credit check. However, you will need to show that a streamlined FHA refinance would benefit you financially, either with a lower rate or on a shorter term, to qualify.
  • Simple refinancing. If you have an existing FHA loan, you can replace it with a new fixed or adjustable rate FHA mortgage with this option.
  • Rate and term refinancing. If you don’t currently have an FHA loan, you can apply for an FHA rate and term refinance to take advantage of lower rates or better terms.
  • Refinancing by collection. FHA loans also offer a cash refinance option. However, since you will receive money, the requirements are stricter compared to simplified or simple refinances. This is available to borrowers who already have an FHA loan as well as those who have other types of mortgages.

VA loan

Minimum credit score to refinance: No specific minimum, although most lenders require at least a credit score of 620.

The Department of Veterans Affairs (VA) helps eligible service members, veterans, and surviving spouses purchase homes. Similar to FHA loans, VA loans are not provided by the department itself, but these loans are offered by private lenders and backed by the VA.

There are a few refinance options available for VA loans:

  • Refinancing loan with interest rate reduction. Borrowers who already have a VA loan and want to lower their monthly payments could do so with an Interest Rate Reduction Refinance Loan (IRRRL). This type of loan is also known as a streamlined refinance.
  • Refinancing by collection. This option can be used by borrowers who already have a VA loan to reduce the equity in their home for cash or by borrowers who wish to refinance another type of mortgage into a VA loan.


Minimum credit score to refinance: No specific minimum, although most lenders require a score of at least 640.

The United States Department of Agriculture (USDA) helps borrowers in rural areas buy homes with loans that require no down payment. These loans are provided by USDA approved and USDA backed lenders.

There are three ways to refinance a USDA loan:

  • Streamline refinancing assistance. This option allows borrowers with little or no equity in their home to refinance on better terms. No credit check is required, but you will need to make the required payments for 12 consecutive months before you can apply.
  • Streamline refinancing. Like the Assisted Option, a Streamlined Refinance (also known as a Standard Streamline) does not require borrowers to have equity in their home. Also, there is no minimum credit score required by the USDA, but keep in mind that lenders who provide these loans often require a score of at least 640. You must also have made the payments required in the six months prior to your application.
  • Unsimplified refinancing. This option works in the same way as streamlined refinancing; however, you must obtain a new appraisal of your home during the application process.

Other Requirements for Refinancing Your Mortgage

In addition to your credit score, you will also need to meet other common requirements to refinance your mortgage. These standards may vary depending on the lender and the type of mortgage you have as well as whether you want to refinance through a government program. In general, you should:

  • Have substantial home equity. When you apply for refinancing, lenders typically look at your home’s equity to decide if you qualify. This is the difference between what you owe on your current mortgage and the current value of your home. You’ll generally need at least 5% of your home’s equity to qualify for refinancing, but it’s best to have at least 20% to avoid high interest rates, high fees, and investment costs. private mortgage insurance (PMI).
  • Have an acceptable loan-to-value ratio. Another thing lenders will look at is your home’s loan-to-value (LTV) ratio. It’s the amount you owe on your home divided by the current value of your home. As a general rule, your LTV ratio should not exceed 80% if you wish to refinance.
  • Have a low debt to income ratio. Your debt-to-income ratio (DTI) is the amount you owe on monthly debt payments relative to your income. To be approved for refinancing, your DTI ratio must not exceed 43%.
  • Wait a while after closing your original mortgage. In some cases, you may have to wait a while before you can refinance after getting your original mortgage, depending on the lender and the type of loan. For example, you must make payments for 12 months before you can apply for a USDA Simplified Refinance.

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Can you refinance your mortgage with bad credit?

While it’s not impossible to refinance your home with bad credit, it could be more difficult. Here are some options to consider:

  • Contact your current lender. Because you are an existing customer, your current lender might be willing to give you some leeway regarding credit requirements, especially if you have been a good customer and made all your payments on time and in full. . However, also be sure to shop around and compare your options with as many other lenders as possible. This way you can find the most optimal loan for your situation.
  • Check the VA refinance program. Military personnel, veterans, and eligible spouses may be able to refinance through the VA. Keep in mind that although the VA does not have a specific minimum credit score, lenders generally require a score of at least 620.
  • Consider FHA refinance programs. Another government-backed option to explore is FHA refinancing. The requirements for an FHA refinance are generally much less stringent than the other options, and you may be able to qualify with a credit score as low as 500, depending on the program.
  • Find a co-signer. Applying with a creditworthy co-signer could make it much easier to qualify for refinance. A co-signer can be anyone with good credit, such as a parent, other relative, or trusted friend, who is willing to share the responsibility for the loan. Keep in mind that this means your co-signer will be liable if you don’t make your payments.

There is no single rule

Ultimately, the exact requirements for refinancing your mortgage will vary greatly depending on the lender you work with, the type of loan you have, and the government programs you apply for.

Be sure to take the time to shop around and compare your options with as many lenders as possible. This way, it will be easier for you to find the right loan for your needs.