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When it comes to refinancing, you have lots of choices. The right one really depends on your credit, the type of loan you have, and the ultimate goals you have for the refinance.
This guide will help you determine which refinance option is best for your situation:
How to choose the right refinance option
Before you can choose the best mortgage refinance option, you need to have a good handle on your credit score and monthly budget. Setting a clear goal for your refinancing is important, too.
Homeowners often refinance to reduce their interest rate, lower their monthly payment, or take cash out of their home equity. Here are your options for refinancing and what each one entails.
Conventional refinance
With a conventional loan, you can choose a:
- Rate-and-term refinance: This allows you to reduce your interest rate or monthly payment.
- Cash-out refinance: This allows you to borrow from your home equity.
No matter which refinancing option you choose, you’ll need a minimum credit score somewhere between 620 and 720. But the score you need will depend on how big a loan you need, your home’s value, your total debt, and how much in cash reserves you have.
FHA streamline refinance
If you already have an FHA loan, an FHA streamline can be a smart way to refinance. FHA doesn’t require a credit check, though many lenders who originate FHA loans will. You’ll also need less documentation than a traditional mortgage loan. In some cases, an appraisal isn’t required either.
There are also FHA rate-and-term and cash-out refinance options that could fit your goals better. The minimum credit score on these is 500, though lenders can set their own individual thresholds as they see fit which might mean a score higher than 500.
Find Out: When to Refinance a Mortgage: Is Now The Best Time?
VA refinance
For military members and veterans, a VA refinance can be a good option. These come in two forms:
- VA cash-out refinance
- VA Interest Rate Reduction Refinance Loan (IRRRL)
Both come with big benefits, as VA loans require no mortgage insurance and come with notably low rates. With VA loans, you also have the option of a no-closing-cost refinance. This lets you bundle your costs into your loan which lets you spread your upfront costs out over time — but often results in a higher interest rate.
Learn More: Refinance Closing Costs: How to Lower and Avoid Fees
USDA refinance
If your home is located in a more rural part of the country, a USDA refinance could be an option. These loans have no official credit score minimum and might not require an appraisal either. The catch is you’ll need to fall under certain income requirements for your area.
Adjustable-rate mortgage (ARM)
If you’re looking to simply reduce your interest rate and mortgage payment, refinancing to an adjustable-rate mortgage can be a smart option. An ARM will have a fixed rate for the initial period, but then the rate can vary and the monthly payment might increase.
Tip: There are both conventional and FHA adjustable-rate mortgages, so the eligibility requirements for these loans can vary greatly.
Home Affordable Refinance Program (HARP)
HARP was set up in 2009 to help homeowners whose homes were declining in value refinance their mortgages. However, this program expired on December 31, 2018. If you’re struggling to make payments, and need a refinance program to help, you can check out any of the above options to see if they’re right for you.
Home refinancing options
If you’re not sure which refinance is the best for your situation, here’s a side-by-side comparison to help you make a decision.
| Refinance type | Credit score | Max LTV | Max DTI | Other eligibility |
|---|---|---|---|---|
| Conventional | 620 to 720 | 97% | 36% to 50% | Might require cash reserves |
| FHA streamline | No credit check required | 97.75% | 43% to 50% | Must already have an FHA loan |
| VA | No official minimum, varies by lender | 90% to 100% | None | Must meet military service requirements |
| USDA | No official minimum, varies by lender | 100% | 41% | Must fall under income threshold for county |
Keep in mind that adjustable-rate mortgages are also a refinancing option. Because the qualifications on these loans depend on the exact loan type and lender you choose, they’re not included in the table above.
Keep Reading: How Often Can You Refinance Your Mortgage?
How to get the best mortgage refinance rates
If your goal is to get the lowest monthly payment with your refinance, then securing a low interest rate is critical.
Here are some ways you can up your chances at a good rate:
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- Improve your credit score. The better your score, the lower your rate will usually be. Most lenders reserve the best rates for borrowers with credit scores of 760 or higher (these are considered “prime” credit scores).
- Increase your equity. The more equity you have in the home, the lower your loan-to-value will be. Lower LTV loans typically come with lower interest rates.
- Reduce your debts. When you pay down your debt, you lower your debt-to-income ratio, which could qualify you for lower interest rates.
- Shop around. Mortgage refinance rates vary by lender, so comparison-shopping can help ensure you get the best one available.
- Buy mortgage points. Buying points can lower your interest rate, usually by around 0.25%. These cost 1% of the total loan amount.
- Lock in your rate. Mortgage rates are always in flux. Rate locking can ensure it doesn’t rise if the market changes before your closing date.
Learn: How to Refinance Your Mortgage in 4 Easy Steps
When you’re ready to refinance, make sure to use Credible Operations, Inc. to streamline the rate-shopping process. Fill out just one form and you’ll get rate quotes from our partner lenders in the table below simultaneously — no separate applications required.
