Minimum credit requirements for refinances usually depend on the loan type. To qualify for a refinance for a conventional loan, most mortgage lenders require a credit score of 620 minimum. For FHA loans, the median minimum qualifying credit score is 500, although most mortgage lenders set their own requirements.
When looking at your refinance application, mortgage lenders also consider your debt-to-income (DTI) ratio. DTI compares the amount of money you have coming in with your recurring monthly debt payments. It is calculated by dividing your monthly minimum debt payments by your earnings each month, before taxes. Your DTI should be 50% or lower before you apply for a rate and term refinance.
Your home equity is the percentage of the home loan principal that you have already paid off. Before you refinance, you will want to have at least 20% equity in your home. While it is possible to refinance with a lower percentage of home equity, you will likely miss out on the most favorable interest rates.
When you get a rate and term refinance, you will need to consider closing costs. Typically, closing costs for a refinance are between 2% and 6% of the principal balance on your loan. If you are unable to cover closing costs upfront when you refinance, you might be able to roll them over to your new loan. If you have enough equity, you can opt for a no-closing-cost refinance.
In most cases, there is no waiting period for a rate and term refinance. Your current mortgage lender may ask you to hold off six months between loans, however you are free to refinance with a different mortgage lender instead. If you are taking cash out, you must wait six months after your most recent closing to refinance. If you are using a government-backed Streamline Refinance program, you will often have to wait up to 210 days (about 7 months).
