Q: I was turned down by my mortgage lender when I applied to refinance a couple years ago because they didn't like my credit score, even though it was higher at that point than it was ten years earlier when I first got the mortgage. Have things loosened up at all? Should I take another shot at refinancing?
A: Certainly, lenders tightened credit standards in reaction to the mortgage crisis. According to figures from Fannie Mae regarding the average credit score for new loans, 2009 through 2012 were the toughest years to get a mortgage. Things loosened up a bit in 2013 and 2014, but the average credit score on new mortgages actually rose in recent years, from 744 to 748.
Even so, it is worth looking into refinancing. Here are five things you can do to improve your chances:
- Check your credit score. If it has been a couple years since you last tried to refinance, your credit score might have improved since then.
- Check your credit report for problems. If your credit score is below where it needs to be, check your credit report for mistakes or fixable issues.
- Pay down debt. Perhaps one of the fastest ways to improve a credit score is to pay down some of your existing debt. The total amount of debt and the percentage of your credit accounts currently in use both impact your credit scores, and paying down debt should improve both factors.
- Try a bigger down payment. Lenders are more likely to approve loans with lower credit scores if they have bigger down payments (i.e., 20 percent or more).
- Shop around. Not all lenders apply exactly the same standards, so don't let getting turned down once dissuade you from trying again.
Comparing refinance rates now with mortgage rates when you first got your loan ten years ago suggests that you could save a lot by refinancing.