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What Kind of Credit Score Do You Need to Refinance Your Home

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You worked hard for that exemplary credit score that ensured you would be able to purchase your home. But it’s been a few years, and now you want to refinance. Does your score still hold up? That three-digit number could decide whether you are able to get a new loan, and whether you are offered your best rate.

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Good credit scores are crucial to the refinance process; lenders typically reserve the best rates and conditions for borrowers who have a highest numbers. While working to raise scores may yield a lower interest rate down the line, there are numerous options that may help borrowers improve their financial picture now.

“The higher your score, the better your interest rate is going to be,” said Tendayi Kapfidze, chief economist for LendingTree, which is owned by MagnifyMoney. But he cautions against concentrating on credit improvement and waiting to refinance. “If you can realize savings today, go ahead and refinance. In the future, if you can realize more savings, you can refinance again. Do it instead of speculating about the future of your credit score and interest rates.”

What credit score does a borrower need?

According to FICO, credit scores generally range from 300 to 850, with anything above 800 characterized as “exceptional.” A score between 670 and 739 is considered “good,” while a number below 580 is “poor,” demonstrating a higher risk to lenders. You can check your credit score here.

Credit-score requirements vary, depending on the type of loan a borrower is seeking for refinancing. In many cases, credit-score requirements can change depending on other factors like debt-to-income ratio (DTI), which is your total outstanding debt divided by your income, and loan-to-value ratio (LTV), which is determined by dividing the loan amount by your home’s current appraised value.

No cash-out mortgage refinance requirements for single-family homes

Conventional loan requirements

Who it’s for: Borrowers with one- to four-unit properties who live on-site may be able to qualify for a conventional refinance. This may also be a good option for those who currently have an FHA loan and whose credit score has risen. “If your credit score has been increasing, you may have an opportunity to refi out of an FHA loan and get rid of the insurance premium,” said Kapfidze.

How to qualify: Requirements vary depending on the DTI and the amount of equity the borrower has in the home.

  • Minimum credit score of 680 for refinances with less than 25% equity and a DTI ratio below 36%; Credit score of 700 with DTI above 36%
  • Minimum credit score of 620 with more than 25% equity for a DTI ratio below 36%; credit score of 640 for DTI above 36%
  • Maximum LTV of 97%; LTV over 80% requires private mortgage insurance (PMI)
  • Maximum DTI of 45%, inclusive of all outstanding debts
  • Lower credit scores may be an option with cash reserves
  • Additional requirements regarding cash reserves for multi-unit properties

FHA standard refinance

Who it’s for: Because of their low credit-score requirements, Federal Housing Administration (FHA) loans may be a good option for borrowers with moderate scores who are looking to refinance to a lower interest rate or to escape an adjustable-rate mortgage (ARM) that is about to adjust.

How to qualify: Borrowers must be current on their existing mortgage for at least six months. Credit scores can be as low as 500 for an LTV less than 90%; a score of 580 is required for LTVs greater than 90%.

  • Maximum LTV of 97.75%
  • Maximum DTI of 43%
  • Additional requirements regarding cash reserves for multi-unit properties

FHA Streamline Refinance

Who it’s for: The FHA Streamline refi is specifically for homeowners who already have an FHA mortgage. A credit check is required if the new loan will cause the principal or interest rate to increase; however, this type of loan may still be a preferable option for someone who wants limited underwriting. For instance, no appraisal is ordered for an FHA Streamline refi.

How to qualify: Borrower must have made at least six months of on-time payments on their current mortgage, and does not have to live in the home.

  • Minimum credit score of 500 on LTV under 90%; score of 580 for LTV over 90%
  • No LTV limits
  • Maximum DTI of 43%
  • Additional requirements regarding cash reserves for multi-unit properties

Cash-back mortgage refinance requirements

Conventional cash-out refinance

Who it’s for: A cash-out refinance can be a great option for those who are looking to tap the equity in their home to make improvements to the property or pay other debts or expenses. Creditworthiness is dependent on a number of factors, including income, LTV and credit score.

How to qualify:

  • Minimum credit score of 680 on refi with less than 25% equity and DTI under 36%; score of 700 for DTI above 36%
  • Minimum credit score of 660 with more than 25% equity and DTI below 36%; 680 on DTI over 36%
  • Score of 640 possible with DTI under 36% and six months’ worth of cash reserves
  • Maximum LTV of 80%
  • Maximum DTI of 45%
  • Additional requirements regarding cash reserves for multi-unit properties

FHA cash-out refinance

Who it’s for: The FHA cash-out refi is for borrowers who have at least 15% equity in their home.

How to qualify: To be eligible, borrowers must have lived in their primary residence for at least 12 months. A new appraisal must be ordered to determine the current value of the home.

  • 500 minimum credit score; varies per lender
  • Maximum LTV of 85%
  • Maximum DTI of 43%
  • Additional requirements regarding cash reserves for multi-unit properties

No-minimum-credit-score home refinance programs

FHA Streamline Refinance

Who it’s for: The FHA Streamline refi allows borrowers to refinance their loan without a credit or income check or an appraisal, making it one of the easiest loans to qualify for.

How to qualify: This type of loan is only for those who already have an FHA mortgage. The only financial qualification for the lender is determining that the borrower will have a “net tangible benefit,” which could be achieved through a lower interest rate or fees.

VA Interest-Rate Reduction Refinance Loan (IRRRL)

Who it’s for: The U.S. Department of Veterans Affairs (VA) Interest Rate Reduction Refinance Loan (IRRRL) is for qualifying military members and family with an existing VA loan.

How to qualify: VA loan holders must be able to lower their interest rate, unless they are refinancing from an ARM, and the principal and interest payment on the new loan generally must be lower than the prior loan. Generally, no appraisal, credit information or underwriting is required, which means

  • No minimum credit score or maximum LTV requirements
  • No cash reserves needed
  • No DTI limits

VA cash-out refinance

Who it’s for: Qualifying military members and their families with a VA loan and who have equity in their home may qualify for a cash-out VA refi.

How to qualify: Credit score requirements will vary by lender, however no minimum credit score is set by the VA.

  • LTV of 100%
  • Generally, maximum DTI of 41%, but may be higher, subject to lender discretion
  • Additional requirements regarding cash reserves for multi-unit properties

How to improve your credit score to get your best refinance rates

Making your payments on time has the greatest impact on your creditworthiness because, according to FICO, payment history accounts for 35% of your credit score. Whether you’re looking to refinance right away or simply want to work on improving your score, there are some simple tactics you can use.

  • Pay your bills on time and get current with overdue or missed payments
  • Pay down existing debt — credit utilization accounts for 30% of your credit score
  • Beware of opening new accounts — new credit accounts and inquiries account for 10% of your credit score
  • Don’t close accounts — this can actually reflect poorly on your score
  • Dispute incorrect information on your credit report — you might be surprised by what you find when you order your report.

Shopping for a refinance

With so many refinancing options, it’s critical to find your best resource to guide you through the process. Here are a few things to look for when shopping around for a lender:

How responsive are they? A lender that takes days to get back to you and who doesn’t stay in regular touch throughout the process can be frustrating.
Do they seem knowledgeable about your particular situation? A lender that has never done a VA cash-out refi, for example, may not be your best option.
Are they up on current rates and aware of trends and predictions? Rates can drop at any time, even when they are predicted to rise. Look for a lender that is paying close attention and is keeping you informed.

Conclusion

Refinancing can save homeowners money monthly, or free up a lump sum for expenses. FHA loans, VA loans, cash-out options — the choices are numerous. Knowing the credit scores and other requirements for different types of loans can help you become better-informed when weighing which type of loan best suits your needs.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

By clicking “See Rates”, you will be directed to LendingTree. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.

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Mortgage

How to Recover From Missed Mortgage Payments

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

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understanding good faith estimate vs loan estimate
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Can you bounce back from a missed mortgage payment or two? The answer is yes, but there’s work involved. After all, your payment history has the greatest impact in determining your credit score.

Falling behind on your mortgage payments can affect your credit and finances, and you could lose your home to foreclosure. It’s critical to be proactive and not wait until it’s too late to get help.

How missed mortgage payments affect your credit

In most cases, mortgage lenders give you a 15-day grace period before charging a fee — often around 5% of the principal and interest portion of your monthly payment — for late payments. But your credit history typically isn’t impacted until you’re at least 30 days behind on a mortgage payment. At this point, your mortgage servicer may report your late mortgage payment to the three major credit reporting bureaus: Equifax, Experian and TransUnion.

Your credit score could drop by 60 to 110 points after a late mortgage payment, depending on where your score started, according to FICO research. Being 90 days late on your loan could lower your score by another 20 points or more.

It can take up to three years to fully recover from a credit score drop after being a month behind on your mortgage, FICO’s research found. Once you’re three months behind on your mortgage, that time can increase to seven years.

Recovering from missed mortgage payments

Falling behind on your mortgage can be a frustrating and scary experience, particularly if you’re facing the threat of foreclosure. Here are some options to help you get back on track after missed mortgage payments:

  • Repayment plan. Your loan servicer agrees to let you spread out your late mortgage payments over the next several months to bring your loan current. When your upcoming payments are due, you’d also pay a portion of the past-due amount until you catch up.
  • Forbearance. Your servicer temporarily reduces or suspends your monthly mortgage payments for a set amount of time. Once the mortgage forbearance period ends, you’ll repay what’s owed by one of three ways: in a lump sum, a repayment plan or by modifying your loan.
  • Modification. A loan modification changes your loan’s original terms by extending your repayment term, lowering your mortgage interest rate or switching you from an adjustable-rate to a fixed-rate mortgage. The goal is to reduce your monthly payment to a more affordable amount.

Be proactive about getting back on track and reaching out to your lender for help instead of waiting until you get late payment notices. If you think you’ll be behind soon or are already a few days behind, make contact now and review your options.

Extra help for homeowners affected by COVID-19

If you’re behind on mortgage payments because of a financial hardship due to the coronavirus pandemic, you may qualify for a mortgage relief program through the Coronavirus Aid, Relief and Economic Security (CARES) Act.

Homeowners who have federally backed mortgages, and conventional loans owned by Fannie Mae or Freddie Mac, can request mortgage forbearance for up to 180 days. They can also request an extension for up to an additional 180 days.

Federally backed mortgages include loans insured by the:

  • Federal Housing Administration (FHA)
  • U.S. Department of Agriculture (USDA)
  • U.S. Department of Veterans Affairs (VA)

Reach out to your mortgage servicer to request forbearance. Even if your loan isn’t backed by a federal government entity, Fannie Mae or Freddie Mac, your servicer may offer payment relief options. You can find your servicer’s contact information on your most recent mortgage statement.

How many mortgage payments can you miss before foreclosure?

Your lender can begin the foreclosure process as soon as you’re two months behind on your mortgage, though it typically won’t start until you’re at least 120 days late, according to the Consumer Financial Protection Bureau. Still, it’s best to check your local foreclosure laws since they vary by state.

Here’s a timeline of how missed mortgage payments can lead to foreclosure.

30 days late

Your lender or servicer reports a late mortgage payment to the credit bureaus once you’re 30 days behind. Your servicer will also directly contact you no later than 36 days after you’re behind to discuss getting current.

45 days late

You’ll receive a notice of default that gives you a deadline — which must be at least 30 days after the notice date — to pay the past-due amount. If you miss that deadline, your servicer can demand that you repay your outstanding mortgage balance, plus interest, in full.

Your mortgage servicer will also assign a team member to work with you on foreclosure prevention options. This information will be communicated to you in writing.

60 days late

Once you’re 60 days late, expect more mortgage late fees, as you’ve missed two payments. Your servicer will send you another notice by the 36th day after the second missed payment. This same process applies for every month you’re behind.

90 days late

At 90 days late, your servicer may send you a letter telling you to bring your mortgage current within 30 days, or face foreclosure. You’ll likely be charged a third late fee.

120 days late

The foreclosure process typically begins after the 120th day you’re behind. If you live in a state with judicial foreclosures, your loan servicer’s attorney will file a foreclosure lawsuit with your county court to resell the home and recoup the money you owe. The process may speed up in nonjudicial foreclosure states, because your lender doesn’t have to sue to repossess your home.

You’re notified in writing about the sale and given a move-out deadline. There’s still a chance you can keep your home if you pay the amount owed, along with any applicable legal fees, before the foreclosure sale date.

Can you get late mortgage payment forgiveness?

If you’ve otherwise had a good payment history but now have one missed mortgage payment, you could try writing a goodwill adjustment letter to request that your servicer erase the late payment information from your credit reports.

Your letter should include:

  • Your name
  • Your account number
  • Your contact information
  • A callout of your good payment history prior to missing a payment
  • An explanation of what led to the late mortgage payment
  • The steps you’re taking to prevent late payments in the future

End the letter by requesting that your servicer remove the late payment from your credit reports, and thank your servicer for their consideration. Print, sign and mail your letter to your servicer’s address.

The letter is simply a request; your servicer isn’t required to grant late mortgage payment forgiveness. If your servicer agrees to remove the late payment info from your credit reports, your credit scores may eventually increase — so long as you continue to make on-time payments.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.

By clicking “See Rates”, you will be directed to LendingTree. Based on your creditworthiness, you may be matched with up to five different lenders in our partner network.

Advertiser Disclosure

Mortgage

What Is the Minimum Credit Score for a Home Loan?

Editorial Note: The content of this article is based on the author’s opinions and recommendations alone. It has not been previewed, commissioned or otherwise endorsed by any of our network partners.

Written By

If you’re hoping to become a homeowner, your credit score may hold the keys to realizing that dream. Knowing the minimum credit score needed for a home loan gives you a baseline to help decide if it’s time to apply for a mortgage, or take some steps to boost your credit first.

It’s possible to get a mortgage with a score as low as 500 if you can come up with a 10% down payment. Keep reading to learn the minimum credit score requirements for the most common loan programs.

What are the minimum credit scores for home loans?

Your credit score plays a big role in determining whether you qualify for a mortgage and what your interest rate offers will be. A higher credit score means you’ll likely get a lower rate and a lower monthly mortgage payment.

There are four main types of mortgages: conventional loans, and government-backed loans insured by the Federal Housing Administration (FHA), the U.S. Department of Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA). Conventional loans, which are the most common loan type with guidelines set by Fannie Mae and Freddie Mac, have a credit score minimum of 620. Although some loan programs don’t specify a minimum credit score needed to qualify, the approved lenders who offer them may set their own minimum requirements.

The table below features the minimum credit scores for these home loans, along with minimum down payment amounts and for whom each of the loans is best.

Loan type

Minimum credit score

Minimum down payment

Who it’s best for

Conventional6203%Borrowers with good credit
FHA500-579 with 10% down payment
580 with 3.5% down payment
10% with a score of 500-579
3.5% with a minimum score of 580
Borrowers who have bad credit and are purchasing a home at or below their area FHA loan limits
VANo credit minimum, but 620 recommendedNo down payment requiredActive-duty service members, veterans and eligible spouses with VA entitlement
USDA640No down payment requiredBorrowers in USDA-eligible rural areas with low- to moderate-incomes

What is a good credit score to buy a house?

Meeting the minimum score requirement for a home loan will limit your mortgage options, while higher credit scores will open the doors to more attractive rates and loan terms. A good credit score can also provide you with more choices for home loan financing.

  • 740 credit score. You’ll typically get your best interest rates for a conventional mortgage with a 740 (or higher) credit score. If you make less than a 20% down payment, you’ll pay for private mortgage insurance (PMI). PMI protects the lender in case you default on your home loan.
  • 640 credit score. Rural homebuyers need to pay attention to this benchmark for USDA financing. Exceptions may be possible with proof that the new payment is lower than what you’re paying for rent now.
  • 620 credit score. The bare minimum credit score for conventional financing comes with the largest mark-ups for interest rates and PMI.
  • 580 credit score. This is the bottom line to be considered for an FHA loan with a 3.5% down payment.
  • 500 credit score. This is the lowest credit score you can have to qualify for an FHA loan, but you must put 10% down to qualify.

Annual percentage rates by credit score

Your mortgage rate is a reflection of the risk lenders take when they offer you a loan. Lenders provide lower rates to borrowers who are the most likely to repay a mortgage.

Here’s a glimpse of the annual percentage rates (APRs) and monthly payments lenders may offer to borrowers at different credit score tiers on a $300,000, 30-year fixed loan. APR measures the total cost of borrowing, including the loan’s interest rate and fees.

FICO Score

APR

Monthly Payment

760-8503.011%$1,267
700-7593.233%$1,303
680-6993.410%$1,332
660-6793.624%$1,368
640-6594.054%$1,442
620-6394.6%$1,538
*Based on national average rate data from myFICO.com for a $300,000, 30-year, fixed-rate loan as of May 4, 2020.

As the credit score ranges fall, the interest rates are higher. Borrowers with a score of 760 to 850, the highest range, saw an average monthly payment of $1,267. Borrowers in the lowest credit score tier of 620 to 639 saw their monthly payment jump to $1,538. The extra $271 in monthly payments adds up to an additional $97,560 in interest charges over the life of the loan.

Steps for improving your credit score

Now that you have an idea of the extra cost of getting a minimum credit score mortgage, follow some of these tips that may help boost your score.

  • Make payments on time. It may seem obvious, but recent late payments on credit accounts hit your scores the hardest. Set your bills on autopay if possible to avoid forgetting to pay one.
  • Pay off balances monthly. Try to pay your entire balance off each month to show you can manage debt responsibly.
  • Keep your credit card balances low. If you do carry a credit card balance, charge 30% or less of the available credit limit on each account.
  • Have a mix of different credit types. Mortgage lenders want to see you can handle longer-term debt as well as credit cards. A car loan or personal loan will help demonstrate your ability to budget for installment debt payments over time.
  • Avoid applying for new accounts. A credit inquiry tells your lender you applied for credit. Even if you were applying to get your best deal on a credit card or car loan, multiple inquiries could drop your scores, and give a lender the impression you’re racking up debt.

Advertiser Disclosure: The products that appear on this site may be from companies from which MagnifyMoney receives compensation. This compensation may impact how and where products appear on this site (including, for example, the order in which they appear). MagnifyMoney does not include all financial institutions or all products offered available in the marketplace.