What is a Good Credit Score For Refinance Your Existing Mortgage?

Find out exactly what credit scores you need to refinance

A 620 credit score used to be considered the line between good and bad credit. Now it has been bumped to 640. What this meant is that anyone with a credit score below 640 could still refinance, but it would come at a higher interest rate. It also meant that any borrower with a credit score above 640 could be assured that they would qualify for a loan at the best interest rates for conventional loans, and therefore helping to lower their monthly mortgage payment.

Unfortunately, at least for 2010 and into 2011, those days are over.

The mortgage credit crisis of 2007 and 2008 resulted in nearly every mortgage loan source redefining "good" credit to mean a credit score of at least 680 and usually 700 or higher. Up until last year, those credit scores were considered excellent but they have become the minimums just to qualify for many programs.

The one exception to these new rules is the FHA mortgage refinance program, which still defines good credit as any credit score above 640. In addition, borrowers with credit scores below 640 may still qualify for an FHA refinance mortgage loan if their loan is approved through the automated underwriting system. Here are details on credit scores needed for FHA refinance loans.

FHA Loan Program for Lower Credit Scores

The FHA loan program can help borrowers with lower credit scores, but that program does come with mortgage insurance which does add to your monthly payments. If you have less than 20% equity in your home when you refinance, then it definitely makes sense to use the FHA program to refinance if your credit score is below 700. Private mortgage insurance costs have increased dramatically for borrowers with credit scores below 700. In many cases it is not even available (e.g. for three and four unit properties). Also, private mortgage insurance qualifying requirements are so high right now that even the most qualified borrowers are having trouble obtaining private mortgage insurance.

If you have more than 20% equity in your home when you refinance and your credit score is below 680, then you need to compare whether it is less expensive to refinance with the FHA program or with conventional fixed rate mortgages from Fannie Mae or Freddie Mac. While there is no mortgage insurance required when you have at least 20% equity for Fannie Mae or Freddie Mac loans, both agencies have significant rate add-ons for borrowers with credit scores between 640 and 680. So it makes sense to compare the two options.

Improving your credit score for refinance

Of course, one option if your credit score is between 640 and 680 would be to work with a credit agency to find out why your score is low and take steps to get your credit score to a level above 680. The good news is that this process used to take months but now only takes weeks. One word of caution, however: while there are many legitimate credit repair agencies there are also a number of less-than-scrupulous companies. Get a referral from someone who has used one or ask your mortgage loan officer for a suggestion to make sure you find someone qualified with whom you can work.

For 2011 and the foreseeable future, 680 is the minimum credit score needed to refinance with Fannie Mae or Freddie Mac without having to get hit with a higher interest rate, and the FHA program is probably your best bet if your score is below 640 - especially if you are borrowing more than 80% of the value of your home.

For an exact refinance rate quote that is customized for your qualifying credit score, complete a free rate quote request now!.

To see the current mortgage rates, visit our Current Mortgage Rates page.

If you have any questions that you would like to get answered by our expert mortgage brokers, please email us or call us at 1-877-868-2503.

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