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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.
April 8, 2020
Managing Your Mortgage, Mortgages
Can I Refinance My Mortgage With Bad Credit?
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Refinancing your mortgage when interest rates fall can lower your monthly payment and save thousands of dollars over the long haul. You can also refinance to tap into home equity, move to a fixed-rate mortgage from an adjustable-rate mortgage or eliminate mortgage insurance.

Worried about bad credit? Don’t disqualify yourself before exploring your refinance options. Credit scores in the 500s to mid-600s may narrow mortgage refinance choices but don’t always eliminate them.

NOTE: Due to the coronavirus outbreak, refinancing may be a bit of a challenge. Lenders are dealing with high loan demand and staffing issues. If you can’t pay your current home loan, refer to our mortgage assistance resource. For the latest information on how to cope with financial stress during this emergency, see NerdWallet’s financial guide to COVID-19.

Refinancing with bad credit

Credit score requirements vary by the type of loan and by the lender. For the best results, shop for a refinance lender willing to work with borrowers who have challenged credit and consider loan programs with more-relaxed credit score requirements.

» MORE: See best mortgage lenders for low credit score borrowers

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. The minimum credit score for an FHA refinance loan typically ranges between 500 and 580.

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 and non-credit-qualifying. A non-credit-qualifying streamline refinance does not 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 is not required.

» MORE: FHA streamline refinance guidelines

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 rate or change the loan term. The lender will do a credit check and calculate your debt-to-income ratio.

FHA cash-out refinance

An FHA cash-out refinance lets you tap into home equity. 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 certain surviving spouses. The VA doesn’t mandate a certain credit score for purchase or refinance loans, but lenders can have their own requirements, which may be as high as 660.

» MORE: See NerdWallet’s picks for best VA IRRRL mortgage lenders

VA streamline refinance

If you already have a VA loan, you can refinance with a VA Interest Rate Reduction Refinance Loan to lower the interest rate or move from an adjustable to fixed rate. The 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 a conventional or VA mortgage with a VA cash-out refinance. The refinance loan allows, but doesn’t require, eligible borrowers to tap into home equity. It also gives the opportunity to get rid of private mortgage insurance if you have a conventional loan, save money with a lower interest rate or move to a fixed-rate from adjustable-rate mortgage.

USDA streamlined assist refinance loans

USDA mortgages are for rural home buyers and are backed by the U.S. Department of Agriculture. You must have a USDA mortgage to take advantage of the streamlined assist refinance loan. The program does not require a new credit review, debt-to-income calculation or home appraisal, in most cases. However, you must have been current on your mortgage for the 12 months prior to applying.

» MORE: See NerdWallet’s picks of best USDA mortgage lenders

Refinance options for underwater mortgages

Two programs may allow you to refinance if you owe more than your home is worth — the Freddie Mac Enhanced Relief Refinance and the Fannie Mae High Loan-to-Value Refinance option. Both programs are geared to homeowners who wouldn’t otherwise qualify to refinance because they owe more than 97% of the value of their homes. They replace the Home Affordable Refinance Program, known as HARP, which operated from 2009 to 2018.

» MORE: Learn about HARP replacement refi options

Refinance denied because of bad credit?

If you can’t refinance now, focus on rebuilding 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 make a big impact. Get your free credit score and monitor the changes.

» MORE: 7 ways to build credit fast

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