See what credit scores you need to get a mortgage today
So what credit score do you need to get the absolute lowest mortgage rates when you are refinancing? The answer depends on whether you are getting a loan from Fannie Mae, Freddie Mac, FHA or from a jumbo portfolio mortgage lender. Your credit score also determines your interest rate and how much of your home's value you can borrow.
Minimum credit score requirements have shot up in the past eighteen months as a response to the mortgage crisis. Borrowers with excellent credit scores can still get some of the lowest fixed rates in today's market. Even with a higher credit score, though, borrowers will face higher rates the less equity they have in their homes.
Borrowers with credit scores between 700 and 739 can also get a slightly better rate when below 60% LTV, but as the LTV increases so does the their mortgage rate by between 1/8% and 1/4%. Rate and term refinances are eligible up to 95% of the value of a property for borrowers with credit scores over 680, but mortgage rates will be 1/2% to 3/4% higher.
For borrowers with credit scores between 680 and 700, mortgage rates will be about 1/2% higher when the loan amount gets to be more than 70% of the value of the property. Anyone with a credit score below 680 really gets hit hard with interest rates 3/4% to 1.5% higher than rates for borrowers with the best credit. These rate bumps are imposed by Fannie Mae and Freddie Mac so all lenders have the same rate increases based on credit score and LTV.
The FHA program is more lenient on credit scores (but they do take a careful look at credit to make sure your credit shows you will be likely to pay the loan back). FHA allows credit scores as low as 620 without any increase in rates and their mortgage insurance costs are lower for borrowers with less than 20% equity.
What do you do if you have a credit score below 620 and you need a cash out refinance loan? In this market, the answer is that you work on fixing your credit to get back above 620. There are few if any cash out refinance options available for borrowers with credit scores below 620.
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