Can I Refinance My Mortgage With Bad Credit?
You may be able to refinance a mortgage with a lower credit score. Credit requirements vary by lender and the type of loan.
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Refinancing your mortgage is more challenging with bad credit, but it may still be possible.
Credit requirements vary by the type of refinance loan and the lender. Some mortgage refinance options are available for people with credit scores in the 500s and 600s.
How to refinance your mortgage with bad credit
Here are some tips for refinancing with a lower credit score:
Shop around with at least three mortgage lenders, including your own mortgage servicer.
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.
Bad credit mortgage refinance options
Here are some mortgage refinance options to consider if you have a lower credit score:
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.
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