What Credit Score Is Required To Refinance A Home In Texas For A Conventional Loan?

Are you thinking about refinancing your home? Mortgage rates are currently low, making now an ideal time to snag a lower rate and bring your monthly payment down. Reducing your interest rate and extending your loan term can make your monthly payments more affordable. 

Is refinancing an option for you? You may be wondering if you would qualify for a refinance and what credit score is required in the state of Texas. Here’s what you need to know to decide if refinancing your home is the right financial move for you. 

Credit Score Required for Refinancing a Home

To refinance a home in Texas or other states, the following credit score ranges and minimums will typically apply: 

  • Conventional loan: 640-700. In order to qualify to refinance a conventional home loan, you need a credit score between 640-700 or higher. You may be able to qualify with a lower score if other factors are in your favor. 
  • FHA loan: 500-580. An FHA (Federal Housing Administration) loan is designed to help people with lower credit scores afford homes, which means you may be eligible for an FHA loan if your score is in the 500-580 range. 
  • VA loan: 620 minimum. A VA (Veterans Affairs) loan typically requires a minimum of 620, but other factors may help if your score happens to be lower. 

Other Factors in Home Loan Approval 

Some other factors are taken into consideration when it comes to approval for home loans and refinancing: 

  • Debt-to-income ratio. This number refers to the amount of your income that goes to debt payments. Debt can include credit cards, student loans, car loans, and the amount you would pay for your home loan. The total amount of your debt payments divided by your total income is your DTI ratio. The higher the percentage, the bigger the risk you are considered to be by lenders and the less likely you are to qualify for a home loan. 
  • Loan-to-value ratio. This number refers to the amount of the loan vs the value of the property. It is calculated by dividing the mortgage amount by the appraised property value. The higher the percentage, the greater the risk to the lender because there is very little equity. Making a higher down payment can offset this risk, but in the case of refinance a down payment is rarely made. In most cases there is some equity built up by the time a refinance is being considered. 

Refinance or Buy a New Home? 

You can also weigh the pros and cons of buying a new home vs refinancing your current home. A refinance can often lower your interest rate and monthly payment, but buying a new home can do the same. When you purchase a new home, the equity built up in your current home can be applied to the new home for a lower mortgage amount in some cases. If you have other reasons to buy a new home, such as the need to upgrade or downgrade in size or to relocate to a more convenient location to work or school, it may be better to move. It is best to avoid refinancing if you think you may buy a new home in the near future. 

How to Boost a Low Credit Score

If you’re concerned about your credit score, the following tips can help you improve it: 

  • Look over your credit report. Start by requesting a copy of your credit report from all 3 credit bureaus. Go over them thoroughly and make sure that everything is correct. If you find any mistakes, dispute them with the credit reporting agency. 
  • Make loan payments on time. Do your best to make your loan payments on time. Not only does this help you avoid unnecessary fees, it also helps your credit score. If you think you will need to make a late payment, notify the lender and you may avoid negative consequences on your credit report. 
  • Keep old credit accounts open. Don’t close old accounts. It improves your credit to have a long standing credit history. 
  • Don’t open new credit accounts. Whenever you apply for a new credit account, your score drops, even if the lender claims it is a “soft hit.” 
  • Pay down other debts. Do your best to pay down on any outstanding balances. High available balances on credit cards and lines of credit will improve your score. 

Find a New Home With The Pamela Walters Group 

If you’re in the market for a new home, the Pamela Walters Group can help you find a home you can afford in Tyler, Texas and the surrounding areas. We can recommend a variety of reputable lenders to help make the home you want attainable. 

Call (903) 962-0075 or contact us today to get started.