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Refinancing with bad credit can be challenging, but it’s not impossible. If your credit is low, you may not qualify — but it’s just one part of your overall financial picture. Lenders will also look at your savings, debt and employment history.
Start by setting realistic expectations. With a credit score in the 500s or 600s, you’ll have fewer mortgage refinance options and will likely pay a higher interest rate.
Here’s what to expect — and how to make a plan.
How to refinance your mortgage with bad credit
When mortgage rates fall, more homeowners look to refinance. But if your credit is low, you may not qualify for the best rates. That can change the equation of deciding when to refinance a mortgage.
🤓 Nerdy Tip
NerdWallet’s rule of thumb is to consider a refinance when today’s mortgage refinance rates are at least 0.5 to 0.75 of a percentage point lower than your current rate. But if your credit or overall finances have slipped, it may make sense to wait for a bigger drop to see meaningful savings. If you can, aim to refinance when it clearly improves your finances — even if that means waiting to build your credit first. But that’s not always possible, like if you’re refinancing to split the house in a divorce.
Whatever your reason, here are some tips for refinancing with a lower credit score:
- 👀Shop around with at least three mortgage lenders, including your own mortgage servicer. Comparing offers can save you thousands over the life of the loan.
- 📝 Submit applications within a two-week period to minimize any impact from lender inquiries on your credit score.
- 🇺🇸Consider government-backed refinance programs, such as FHA loans, which have lower credit score requirements than conventional loans.
- 🔨Focus on building your credit if you can't refinance now.
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What credit score do I need to refinance?
Most mortgage lenders look for a credit score of at least 620 to approve a refinance, and the lowest rates typically go to borrowers with scores of 740 or higher. Here’s how it generally breaks down by credit score ranges:
- 🚫 Below 500: Qualifying for a refinance is unlikely. In this range, you’re usually better off focusing on improving your credit instead.
- 🛑 500–579: Options are very limited, but you might qualify for an FHA refinance, which is backed by the Federal Housing Administration.
- ⚠️ 580–619: Approval is possible with some lenders, though not guaranteed. Expect higher interest rates if you do qualify.
- ⚠️ 620 and up: More doors start to open, including conventional refinance options. Approval still depends on your overall finances, and rates may be higher than average.
- ✅ 700 and up: You’ll have the widest range of choices. Lenders are typically more flexible — especially if the rest of your financial picture is solid — and scores of 740+ tend to qualify for the lowest rates.
Nerdy Perspective
Are there bad credit mortgage loans with guaranteed approval, or is that a myth?
Getting approved with bad credit isn’t a sure thing, so a “guaranteed approval” refinance is probably just marketing. A smart first step is to know which lenders are most open to lower credit scores. I’d start with NerdWallet’s roundup of the best mortgage lenders for low credit borrowers. We personally reviewed every lender that earned a spot on this list to make sure they offer flexible requirements.From there, shop around. Comparing offers can help you find a loan you actually qualify for — and which lender will save you the most money.
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Mortgage options: Refinancing with bad credit
You have lots of different types of refinance loans to choose from. Here are some specific mortgage refinance options to consider if you have a lower credit score:
Conventional refinance loans
Two options are the Refi Now and Refi Possible loans from Fannie Mae and Freddie Mac, respectively. These loans are designed for low- to moderate-income borrowers and have more flexible qualifying requirements.
To qualify, you must be current on your mortgage payments and have a conventional loan from Fannie Mae or Freddie Mac already. Also, the new loan must have a clear financial benefit (like a lower interest rate).
FHA refinance loans
FHA loans, which are insured by the Federal Housing Administration, have less strict credit requirements than other types of mortgages.
FHA streamline refinance
To qualify for an FHA streamline refinance, your current mortgage must be an FHA loan and you must be current on the payments. There are two types of FHA streamline refinance loans:
- Credit qualifying: As the name suggests, a credit report is required. Lenders set their own credit score minimums, typically at least 580, but the FHA allows scores as low as 500.
- Non-credit-qualifying: doesn't require the lender to do a full credit check or calculate your debt-to-income ratio. The downside? You may pay a higher interest rate than with the credit-qualifying version.
A home appraisal isn't required for either option.
FHA rate and term refinance
You can refinance any type of mortgage, such as a conventional home loan, into a rate and term FHA refinance. "Rate and term" simply refers to the ability to get a lower interest rate or change the length, or term, of the loan. The lender will do a credit check and calculate your debt-to-income ratio. The FHA requires a minimum credit score of 500.
FHA cash-out refinance
An FHA cash-out refinance lets you access your home’s built-up value and turn it into cash. The new loan can be up to 80% of the home's value. The FHA requires a minimum credit score of 500 for a cash-out refinance, but lenders may require higher scores.
VA refinance loans
Guaranteed by the U.S. Department of Veterans Affairs, VA loans are for military service members, veterans and eligible surviving spouses. The VA doesn't mandate a certain credit score for purchase or refinance loans, but lenders can have their own requirements, often at least 620.
VA streamline refinance
If you already have a VA loan, you can refinance with a VA Interest Rate Reduction Refinance Loan (IRRRL) to lower the interest rate or move from an adjustable to fixed rate. This loan is also known as a VA streamline refinance because the process is simplified. The VA doesn't require a new credit check or appraisal for a streamline refinance, but the lender might.
VA cash-out refinance
Qualified homeowners can refinance an existing VA mortgage or a non-VA loan with a VA cash-out refinance. This refinance loan allows eligible borrowers to tap into home equity. It also gives the opportunity to save money with a lower interest rate, move to a fixed-rate from adjustable-rate mortgage or, if you have a conventional loan, get rid of private mortgage insurance. If you are refinancing from a non-VA to a VA loan, you aren’t required to take cash out.
USDA streamlined assist refinance loans
USDA mortgages, backed by the U.S. Department of Agriculture, are primarily for rural home buyers. You must have a USDA mortgage to take advantage of the streamlined assist refinance loan. The program doesn't require debt-to-income calculation or home appraisal, in most cases. It also offers more credit flexibility and might allow you to skip the credit check altogether. However, you must have been current on your mortgage for the 180 days prior to applying.
🤓 Nerdy Tip
If you don’t want to shop lenders yourself, a mortgage broker can do the legwork for you. Brokers charge a fee, but they may be able to find you a lower rate — a nice perk, especially if your credit makes things more complicated. Pros and cons: Refinancing a mortgage with bad credit
Refinancing with bad credit can help in the right situation — but it often comes with trade-offs. A big one is closing costs, which range from 2% to 6% of the new loan amount.
It can take years to break even from a refinance. For example, closing costs for a $300,000 refinance would run $6,000 to $18,000.
Here’s how to weigh the options before you move forward.
Pros
You may be able to lower your monthly payment.
Could help you switch loan types (like FHA to conventional).
Opportunity to remove mortgage insurance, in some cases.
Can provide access to cash if you qualify for a cash-out refi.
Cons
Higher interest rates compared to borrowers with stronger credit.
Fewer lenders and loan options to choose from.
Tougher approval requirements.
Closing costs may outweigh savings if the rate isn’t much lower.
Restore your credit to refinance
If you can't refinance now because of a bad credit score, focus on building your credit. Here's the bright spot: It's possible to elevate a low score fairly quickly. Small actions, such as paying bills on time and using a smaller percentage of your credit limit on credit cards, can have a faster impact than you might think. Get your free credit score and monitor the changes.
» MORE: How to build credit fast
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