If you’re considering mortgage refinancing you might wonder what credit score you need to be approved. While much has changed since 2006, there are things you can do to make sure your credit score isn’t holding you back from low refinance rates from today’s best mortgage lenders. Here’s what you need to know about credit scores when it comes to getting the best deal mortgage refinancing.
Your Mortgage Rates Are Credit Based
If you’re shopping from the top mortgage lenders like Amerisave or NFCU Mortgage Rates and the quotes you’re getting are coming in higher than what you’re seeing advertised, your credit is likely the culprit. Most of the quotes you see advertised are based on a credit score of 720 or higher with a favorable loan-to-value ratio. If you’re sitting at 620 you can still be approved for mortgage refinancing, although you might be disappointed with the results.
So what credit score do you need for mortgage refinancing? The Federal Reserve recently conducted a survey of lender executives that sheds some light on the matter.
Long gone are the boom days of 2006 where all you needed to get mortgage approval was a heartbeat. Lending standards have tightened significantly for homeowners south of 700; however, the extent of lending standards changing across the industry remains unclear.
The survey conducted by the Federal Reserve indicates that there are lenders out there willing to approve borrows with credit scores in 600 range. Homeowners with better scores are more likely to find offers with much lower refinance rates and fees; however, it often takes a little legwork to find lenders with the lowest closing costs including loan origination fees.
720 or Better? Your Outlook is Sunny
If your credit score is 720 or better 90% of mortgage lenders surveyed indicated their best rates were available to borrowers without paying discount points. More favorable mortgage refinance rates are available if you’re willing to pay for them. Paying discount points at closing will lower your mortgage rates by .25 percent for every point you pay. Remember one discount point is one percent of your loan amount.
Sub 680 Means Fewer Refinancing Choices
If your credit score is less than 680 it’s going to be more difficult to find lenders willing to approve your mortgage refinancing. Banks and lenders willing to approve you will charge you a premium when it comes to interest rates and fees.
If you’re sitting at 620 there are banks out there willing to approve your refinancing application; however, you’re going to be disappointed with the results. The best advice for homeowners in this situation is to start cleaning up negative information found in your credit reports. Many credit unions offer credit counseling to their members, a benefit worth using.
This survey by the Federal Reserve demonstrates the importance of shopping around for both refinance rates AND closing costs when refinancing, especially the loan origination fee. You might be surprised to learn that when it comes to mortgage refinance, the fees you pay at closing are the most important aspect of the loan.
If you’re unable to recoup your out-of-pocket expenses paid at closing because you’re paying discount points or overpaying the loan origination fee you’re going to be losing money no matter how favorable your interest rate.
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You can learn more about getting the best deal on your next home loan while avoiding lender junk fees and unnecessary discount points by checking out my free Underground Mortgage Videos.
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