There are a variety of requirements that need to be met depending on the type of refinance option you choose. For cash-out refinance options, your name must be on the title of your home for a minimum of 6 months if you have a jumbo loan or VA loan. You’ll likely need to wait a year for a conventional or FHA cash-out refinance. There are limited exceptions to these rules including if you’re taking advantage of delayed financing or you’ve inherited the home. There are also a few other refinance requirements you will need to consider before applying to your mortgage lender. Your credit score has a direct impact on your ability to refinance. Your credit score is a number that ranges from 300 to 850 and is used to indicate your creditworthiness. Lenders look at your score to determine how likely you are to repay your debts. Your current credit score also determines whether you’re eligible for a refinance and the mortgage rate you can get. Conventional Refinance Credit Score RequirementsAn Adequate Credit Score
Just like with your original mortgage, the higher your credit score, the better your rate. Most lenders require a credit score of 620 to refinance to a conventional loan.
FHA Loan Refinance Credit Score Requirements
FHA loans have a 500 minimum median qualifying credit score. However, most FHA-approved lenders set their own credit limits. Rocket Mortgage® requires a minimum 580 credit score to qualify. The credit score to qualify for a cash-out FHA loan refinance is often slightly higher at 620. The exception is if you already have your loan with us and you're taking cash out to pay off debt at closing. The median credit score can be as low as 580.
You can also refinance through an FHA Streamline refinance, which enables you to refinance an existing FHA loan to a lower interest rate more quickly. You can avoid a lot of extra paperwork and continue with a no-appraisal refinance in many cases. Since you’ve already proven you are a good credit risk for an FHA-guaranteed loan through your original FHA mortgage, the streamline option can save you time and money.
VA Loan Refinance Credit Score Requirements
If you're looking to lower your rate or change your term, the minimum median qualifying credit score to get a VA loan is 580. You can also take cash out at this score as long as you leave at least 10% equity in your home after the refinance. If your median score is 620 or higher, you can cash out up to the full amount of your equity.
The Department of Veterans Affairs loan program offers a refinance streamline program called an Interest Rate Reduction Refinance Loan (IRRRL). Rocket Mortgage requires a minimum 580 credit score to proceed with a VA IRRRL. If you want a VA IRRRL with Rocket Mortgage but are switching from a different lender, you'll need a minimum credit score of 600.
If you're worried about qualifying for a refinance with your current credit, there are strategies for refinancing with bad credit.
Substantial Home Equity
In addition to an adequate credit score, you must have built up enough equity in your home to qualify for a refinance. Home equity is the percentage of the home’s value that you own and is the amount you would get if you sold the house and paid off your mortgage. The more equity you have, the better.
20% Equity Or More
A general rule of thumb is that you should have at least 20% equity in your home if you want to refinance. If you want to get rid of private mortgage insurance, you’ll likely need 20% equity in your home. This number is often the amount of equity you’ll need if you want to do a cash-out refinance, too.
It’s important to also note that most mortgage lenders only allow borrowers to use 80% – 90% of their home’s equity for a cash payment. Although, if you are refinancing with a VA loan, your lender may allow a higher loan-to-value ratio (LTV), depending on your credit score and personal situation. At Rocket Mortgage, you can cash out up to 100% of your equity with a minimum 620 FICO® Score.
Under 20% Equity
If your equity is under 20% and if you have a good credit rating, you may still be able to refinance, but you might have to settle for a higher interest rate or mortgage insurance. You may find that it’s worth refinancing even if you don’t have much equity if interest rates have dropped significantly since you closed on your mortgage.
There are no equity requirements for interest-reduction FHA Streamline refinance loans. You do need 20% equity for a cash-out refi in most circ*mstances.
