As home values drop, more homeowners are turning to mortgage refinancing to help them get through difficult times. Some homeowners are facing balloon payments, or a reset in interest rates when a fixed rate mortgage becomes an adjustable rate mortgage.Whatever the reason for wanting to refinance a home mortgage, some simple facts hold true — chief among them is that your credit score will have a major impact on the process.
While many lenders were willing to overlook a questionable credit score for home refinancing just a few short months ago, these days they’re taking a much harder look at borrowers’ credit ratings, credit history, and credit score. If you’re hoping to refinance your home mortgage, you can expect that your credit score will play a role in whether you can borrow, how much you can borrow and what rating you’ll be offered.
Your credit score is determined by several different factors which may include your payment history on bills, your salary, and your debt to credit ratio– even how long you’ve been in your current job. Most lenders view your credit score or credit rating as the best indicator of how likely you are to repay your mortgage. Nowadays banks are more careful about the loans that they make, so they’re looking carefully at those credit scores and tightening up their lending guidelines.
The biggest reason that most people seek to refinance a home mortgage is to get a better deal. Usually, that means a lower interest rate. These days, those low-interest loans tend to be reserved for borrowers with credit scores that are higher than 780.If your credit score is lower than that, you may still be approved for a new mortgage, but you can expect to pay interest rates that are considerably higher. Keep in mind that when you’re refinancing a mortgage, even a few tenths of a percentage point in the interest rate can add tens of thousands of dollars to your repayment amount. Low credit score is a relative term these days. There are ways you can get a lower interest rate if you’re willing to do a little work.
To improve your credit score, you can start by knowing your credit rating with all three credit rating agencies. You can improve your credit score if it’s low, and you should do so if you don’t need to refinance right away. Start by checking your credit reports for any inaccuracies and insisting on corrections by the scoring agency if your find any. Once you’ve corrected any misinformation on your credit report, you can also work to rehabilitate it.