What Credit Score Is Needed for a Cash-Out Refinance Loan?

With a cash-out refinance, you can use some of the hard-earned equity in your home to pay for college tuition, a home renovation, or reduce consumer debt.

But what are the qualifications to get a cash-out refi? How high does your credit score need to be? Below is the information you need to know about credit scores and your cash-out refinance.

Credit Score To Refinance Your Mortgage

Being eligible to refinance your mortgage for cash out depends on several factors. It helps to have a reasonable credit score, not to mention a solid debt-to-income (DTI) ratio. Also, cash on hand may be required, and don’t forget closing costs!

A major factor in the credit score you need to refi is the type of home loan you are getting. Let’s take a closer look at the most common types of mortgages and the credit scores required.

Conventional Cash-Out Refinance

If you have a conventional home loan, you need to have a credit score of 680 if you have less than 25% equity in your home and have a DTI below 36%.

Your DTI is your total monthly income divided by your total monthly debt payments. If you have a DTI above 36%, you need to have a 700 credit score.

For those with more than 25% equity, you need a 660 credit score for a DTI under 36% or 680 for a DTI above 36%.

However, you can have a 640 credit score and refinance with a DTI of 36% IF you have six months of cash reserves.

FHA Cash-Out Refinance

First of all, you only can pull out cash with an FHA refinance if you have lived there at least 12 months.

You must have a 500 minimum credit score to refinance for cash out, according to the HUD/FHA website. However, keep in mind that lenders will usually have higher requirements for your credit score.

For most lenders, you need to have at least a 580 credit score to do a cash-out refinance, and some lenders may require a 640 or 680.

It is a smart idea to check with your mortgage lender to see what their minimum credit score requirements are for this type of refinance.

VA Cash-Out Refinance

This type of refinance is only for owner-occupants who have a VA loan based on their military service. This is a great loan to have because there is no minimum credit score set by the Veteran’s Administration.

However, specific lenders may have minimum credit score requirements, so check with your VA-approved mortgage lender for details.

Credit Score Not High Enough to Refinance?

So now that you know the general credit score requirements, what if you don’t qualify? First, check with your specific lender to determine what their refinance requirements are for your specific loan type.

Next, follow these tips to improve your credit score:

  • Know your credit score. Seems obvious, by many people don’t have a clue what their credit score is. Knowing your score will tell you quickly if you can refinance. You do not have to have flawless credit to refinance. You can get one free credit report per year at this US government website.
  • Make your payments on time. The most important factor for your score is your payment history. The more on-time payments you have, the better your credit score will be. If you miss one payment, it will affect your score for a year or more, so be careful to pay everything on time.
  • Pay off credit cards. Want to see your score go up a lot fast? Pay off your credit cards, or pay them down as much as you can. The less of your credit lines you are using, the lower risk you are to creditors and the higher your score.
  • Do not close credit accounts. Some think that closing old accounts helps your score. Not true. In fact, it can hurt you because your available credit will drop, which can affect your debt to credit ratio. Leave your old accounts open.
  • Pay down your auto or student loans. If you have paid off your credit cards, wonderful! Now pay off your auto and student loans. Again, the less of your credit you are using, the higher your score. And of course, make sure your auto and student loans are paid on time.
  • Do not open new credit lines. While you are in the refinance process, this is not the time to open new credit accounts. Every new account you open creates a credit inquiry that lowers your credit score. Want that new credit card? Wait until the refinance is closed.
  • Don’t run up your credit. This also is not the time to buy $10,000 worth of home improvement products on your credit card! This action will lower your credit score.

Final Thoughts on Credit Score Needed for a Cash-Out Refinance Loan

Many people think you have to have an 800 credit score to refinance your home loan. This is not true. You can refinance in some situations with a 620, 640, or 680 credit score. Much depends on the type of loan you have, your income, the lender, DTI, cash on hand, and other factors.

The best way to know exactly what your credit score has to be to refinance is to speak to your lender. They will be able to tell you exactly what your credit score needs to be for various refinance programs.

It also is a smart idea to get your credit score as high as you can in the months before you want to refinance. About a year before you want to refi, pay down credit cards and other loans to have the highest credit score possible. This will increase the odds of approval. And you will get the best rate possible!

References

Author: Bryan Dornan

Bryan Dornan is a financial journalist and currently serves as Chief Editor of Cash Out Refi Tips.com. Bryan has worked in the mortgage industry for over 20 years and has a wealth of experience in providing mortgage clients with the highest level of service in the industry. He also writes for RealtyTimes, Patch, Buzzfeed, Medium and other national publications. Find him on Twitter, Muckrack, Linkedin and ActiveRain.

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