Refinancing a mortgage can save you money in interest and lower your monthly payments. But to qualify for the best rates, you’ll need a strong credit score. When you applied for your first mortgage, lenders looked at various factors, including your credit score, to determine whether you were a good risk for a loan. Your credit score is just as important, if not more so when you’re looking to refinance your mortgage.
There are government-backed programs available for homeowners with less-than-perfect credit, which means you can refinance even if your credit score is low. But the better your credit score, the more options will be open to you, and the more amount you could save in interest over time. So, what credit score do you need for a mortgage refinance in Florida?
What Is an Adequate Credit Score for Refinancing?
A good credit score for refinancing is one that will qualify you for the best rates and terms available. It is a number that represents your creditworthiness, and it is based on your credit history. According to FICO, a credit score scale operates from 300 to 850.
The ranges are:
- 300-579: Very poor
- 580-669: Fair
- 670-739: Good
- 740-799: Very good
- 800-850: Excellent
Keep in mind that having good or excellent credit might make it simpler to obtain mortgage refinancing. However, borrowers with worse credit may still be able to qualify with particular lenders or via specific programs.
What Is the Credit Score Needed to Refinance a Mortgage?
It depends on the refinance loan you want. The credit score affects the interest rate you get, which in turn affects the monthly payment you can afford. It varies by type of mortgage and by the lender. So what can you expect?
Conventional loans are available from many lenders, but they’re governed by guidelines set by Fannie Mae and Freddie Mac. The minimum credit score requirement for conventional refinance loans is 620 to 720, depending on the mortgage program. It makes up the majority of all mortgages issued by banks or private lenders.
It offers a couple of options: Rate-and-term refinancing and cash-out refinancing.
Rate-and-term: You can get more favorable terms on your existing mortgages, such as a higher interest rate or smaller monthly payments, through a rate-and-term refinancing.
Cash-out: With cash-out refinancing, you can refinance your mortgage for more than you currently owe and receive the difference in cash. You will take out a new loan that is larger than the one you currently have and receive the difference in cash minus closing costs.
VA loans are available to eligible veterans, reservists, and active-duty service members. They are financed by the Department of Veterans Affairs and can be used to purchase or refinance a home. VA refinance loans’ minimum credit score requirement is 620. VA home loans in Florida are one of the best mortgage refinance options for borrowers who may not have the best credit scores.
There are two VA refinance loans: the Interest Rate Reduction Refinance Loan (IRRRL) and the Cash-Out Refinance Loan.
IRRRL: The IRRRL is a “streamline” refinance loan that can help you lower your interest rate and monthly payments with minimal documentation required.
Cash-out: The Cash-Out Refinance Loan allows you to refinance your mortgage for more than you currently owe and receive the difference in cash. This is an admirable option for borrowers who have built up equity in their homes and need cash for debt consolidation or other purposes.
If you are confused between VA and conventional loans, check this VA loan vs. conventional mortgage.
The Federal Housing Administration (FHA) assures these loans, which are available from approved lenders throughout the country. FHA refinance loans’ minimum credit score requirements are 500 or 580, depending on the lender.
These loans are easy to qualify for and have more flexible underwriting requirements than other loan programs. FHA loans are a superior option for borrowers who may not have the best credit scores or can’t afford a large down payment.
There are two kinds of FHA refinance loans: the Streamline Refinance Loan and the Cash-Out Refinance Loan.
Streamline: The Streamline Refinance Loan is a “streamlined” version of the FHA refinance loan that can help you minimize your interest rate and monthly payments with minimal documentation required.
Cash-out: The Cash-Out Refinance Loan allows you to refinance your mortgage for more than you currently owe and receive the difference in cash. This is open to borrowers who have an FHA loan and those with other forms of loans.
Also to note, if you have an existing FHA mortgage refinance, you can replace it with FHA streamline refinance.
The USDA – United States Department of Agriculture helps homeowners in designated rural areas to refinance their homes with a USDA loan. USDA refinance loans’ minimum credit score requirement is 640, although some lenders may require a higher score.
There are three ways for USDA refinance loans:
Streamline assist refinance loan: Borrowers with little or no equity in their homes can use this option to refinance at better rates. Although you’ll need to make your required installments for a year before applying, there is no credit check involved.
Streamline refinance: It doesn’t need borrowers to have equity in their homes. There is no minimum credit score, and no income verification is required. Keep in mind that the interest rate may be higher than with other refinance loans. You also need to pay the required amount for six months before applying.
Non-streamline refinances: It works similar to streamline refinance but with more relaxed guidelines. You must get your home appraised, but no minimum credit score or income verification is required.
Is It Possible to Refinance Your Mortgage if You Have Poor Credit?
It’s possible to refinance your house if you have bad credit, but it may be more difficult. Here are some things to think about:
Call Your Existing Lender
You may negotiate with your current lender for more leniency in credit criteria since you are an existing customer—particularly if you’ve been a good client and paid on time and in full throughout the duration of your loan. Make sure to shop around for mortgage loans in Florida and compare your options before deciding on a new loan.
Check Out the VA Refinancing Program
The U.S. Department of VA (Veterans Affairs) might be able to assist with refinancing for military personnel, veterans, and qualifying spouses. It doesn’t have to be perfect, and you may be able to get a lower interest rate with a required score of at least 620.
Consider the FHA Refinance Programs
Explore refinancing with FHA if your score is as low as 500. It might be easier to qualify for an FHA loan than other types of refinancing, and you can get a lower interest rate. The downside is that you’ll have to pay mortgage insurance, which will increase your monthly payments.
Find a Co-signer
It might be a lot simpler to qualify for refinancing if you have a creditworthy co-signer. It can be anyone who is willing to sign the loan with you and is also creditworthy, such as a family member or friend. Just remember that if you default on the loan, the co-signer will be responsible for repaying it.
When you’re looking for a mortgage refinance in Florida, you’ll need to consider many factors, such as your credit score, employment history, and income. There are distinct types of loans available, so make sure to do your research and compare your options before deciding. It’s a great idea to talk with a mortgage advisor in Florida to get expert advice on which loan is right for you.