The mortgage refinance application process is similar to the purchase process. Many of the same documents are required to verify your credit score and financial situation, and most refinance programs also require a new evaluation. Here we take a closer look at some of the key requirements.
credit score
Credit scores for refinancing a mortgage vary by loan type and lender. Here are the scores required for most refinance loans:
Traditional refinancing. 620 jumbo refinancing. 700 FHA rate and term refinance. Refinancing an FHA loan requires a credit score of at least 500, but lenders may require a score of 580 or higher. FHA cash-out refinance. 580 to 620 yen depending on the purpose of the loan. FHA streamlines refinancing. Borrowers can submit a non-credit qualification application that does not require a hard credit check or minimum credit score. However, a credit-eligible FHA streamlined refinance may result in a lower interest rate. To qualify, you must have a minimum credit score of 500 or 580, depending on your LTV ratio. VA loans. The VA does not set a minimum credit score for VA Cash-Out Refinance or VA Streamline Refinance loans, but lenders may require scores in the 580 to 620 range. USDA loans. USDA mortgage lenders may require credit scores as high as 640, but the Streamlined Assisted Refinance loan waives credit requirements after 12 consecutive on-time payments.
debt to income ratio
Lenders typically accept DTI ratios as high as 50% for conforming loan refinances, but higher DTIs may require additional underwriting and reserve requirements.
Nonconforming loans, such as jumbo loans, may require a DTI of 43% or less. Lenders often reserve the most competitive rates for borrowers with a DTI below 43%.
home equity
Most lenders require you to have at least 20% equity in your home before refinancing, which equates to an 80% LTV ratio. This is a common benchmark because LTV ratios below 80% waive private mortgage insurance (PMI) and qualify for more competitive interest rates.
The Streamlined Refinance Program has no minimum capital requirements, but you will continue to pay mortgage insurance premiums with FHA and USDA loans.
Minimum waiting period
Most lenders require you to wait at least six months after the closing date before accepting your mortgage refinance application. This seasoning period applies to traditional FHA, VA, and USDA loans. This gives you time to establish a favorable payment history and accumulate more assets, which may qualify you for a more favorable interest rate and monthly payments.
Certain loans, such as FHA cash-out refinances, have more stringent waiting periods, which can extend up to 12 months and require consecutive on-time payments.
Other than an initial waiting period after closing, there is no limit to the number of times you can refinance your mortgage.
