Refinancing your mortgage can bring you freedom – there’s no question about it. Refinancing allows you to borrow on your home’s equity, get rid of your mortgage insurance, shrink your monthly payments, or shorten your loan term.
The first step you should take if you’re thinking about a refinance is, to check if you’re eligible and whether you’re prepared for the process. Continue reading to make sure you have all the right tools in your toolbox before you get started.
You’ve Owned Your House Long Enough
Refinancing means that you replace your current mortgage with another mortgage with a different rate and term. You then pay off your current mortgage with the proceeds from a new loan. Most of the time, homeowners refinance their homes to negotiate a loan with, a lower interest rate, a lower monthly payment or to change their loan type from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.
You could even use a cash-out refinance to take a loan worth more than the amount that you currently owe and get the difference in cash. Then, you can use that cash to make home repairs, renovations, or pay down high-interest credit card debt.
An Adequate Credit Score
Your credit score directly impacts your ability to refinance. Your credit score is a number that ranges from 300 – 850 and is used to indicate your creditworthiness. Lenders look at your score to figure out how likely you are to repay your debts. Your current credit score determines whether you’re eligible for a refinance and the mortgage interest rate you can get for your refinance as well.
Conventional Loan Refinance Credit Score Requirements
Like with your original mortgage, the higher your credit score, the better your mortgage rate. Most of the time, lenders require a credit score of 620 to refinance to a conventional loan. If you have a conventional loan, you may have to qualify as if you were purchasing the home for the first time.