How to Refinance Your Mortgage With Bad Credit

Our goal here at Credible is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders, all opinions are our own.

A low credit score doesn’t mean you can’t refinance your mortgage. In fact, there are many refinancing options to consider if you have bad credit.

If you have bad credit and are looking to refinance your mortgage, here’s what you should know:

How to refinance a mortgage with bad credit

If you have poor credit and aren’t sure where to start, follow these steps to get started:

1. Improve your credit score
2. Consider a co-borrower
3. Compare bad credit mortgage refinance programs
4. Check with your current lender
5. Compare rates from multiple lenders

1. Improve your credit score

After checking your credit and knowing what your current credit score is, it’s a good idea to see how you can improve it before applying for your refinance.

To improve your credit quickly, here are a few things you can try:

• Ask for a credit line increase on a current credit card
• Become an authorized user on someone else’s account or credit card
• Pay off your debt as much as possible
• Don’t close old accounts (like credit cards)

Learn More: How to Improve Your Credit Score ↑ in 5 Steps

2. Consider a co-borrower

If you have a spouse, partner, or trusted friend with good credit, consider asking them to apply for the loan with you.

With their name on the application, lenders will look at both credit profiles and incomes, giving you a better shot at approval if your co-borrower is more creditworthy.

Just make sure the co-borrower understands their obligations. For example, if you’re unable to make payments on the loan, they’d have to repay it.

3. Compare bad credit mortgage refinance programs

Next, you should research bad credit refinance programs to see which loans you might be eligible for. Having a good idea of what loan product you’ll be using can help you when shopping around for lenders.

4. Check with your current lender

Get a refinancing quote from your current lender. If you’ve paid your loan on time consistently and have a good history with them, they might be willing to refinance your loan without a credit check — or at least look past that score and consider other factors when evaluating your application.

A current and solid relationship with a lender can go a long way, so it never hurts to ask.

Keep Reading: How to Refinance Your Mortgage in 4 Easy Steps

5. Compare rates from multiple lenders

Comparing rates from multiple lenders is one of the best ways to find the best loan and interest rate for you — whether you have good or bad credit.

Credible Operations, Inc. lets you shop for prequalified refinancing rates from all of our partner lenders in the table below by filling out just one form.

Requirements to refinance your mortgage with bad credit

Find Out: When to Refinance a Mortgage: Is Now The Best Time?

Pros and cons of bad credit mortgage refinance options

FHA rate and term refinance

Rate and term refinancing is intended to help borrowers change their interest rate, loan term, or both. This often results in a lower monthly payment.

Pros:

• Lower credit score requirements
• Can be used to refinance non-FHA loans
• Can refinance up to 97.5% of your home’s value, but a lower cap applies with a lower credit score

Cons:

• Requires mortgage insurance
• No cash-out allowed
• Requires new appraisal

Learn: How to Get the Best Mortgage Rates

FHA cash-out refinance

With a cash-out refinance, you can replace your existing mortgage loan and take out some extra cash from the equity you have in your home.

Just keep in mind, your new loan will have a higher balance, which could mean a higher monthly payment.

Pros:

• Low credit score requirements
• Can be used to refinance non-FHA loans

Cons:

• Requires mortgage insurance
• Requires new appraisal
• Can only refinance up to 80% of your home value

FHA streamline refinance

FHA’s streamline program is designed to ease the refinancing process for existing FHA borrowers.

In many cases, it requires no appraisal, no credit check, and no income verification, and documentation requirements are reduced.

Pros:

• Credit check might not be required
• Appraisal might not be required

Cons:

• Requires mortgage insurance
• Must already have an FHA loan

VA rate and term refinance (IRRRL)

The Department of Veterans Affairs also offers a rate and term refinance program called the Interest Rate Reduction Refinance Loan (IRRRL).

It’s only available to eligible military members, veterans, and their spouses (under limited circumstances).

Pros:

• No credit or income check
• No appraisal
• Can roll your refinancing costs into your loan
• No mortgage insurance
• Could refinance up to 100% of your home’s value

Cons:

• Only available to eligible veterans and military members
• You must already have a VA loan
• Requires a funding fee

Check Out: Refinance Closing Costs: How to Lower and Avoid Fees

VA cash-out refinance

You can also do a cash-out refinance of existing VA loans if you’re a military member or veteran. The VA also allows you to finance your closing costs, making the refinance very affordable.

Pros:

• Can roll your refinancing costs into your loan
• No mortgage insurance
• Could refinance up to 100% of your home’s value

Cons:

• Only available to eligible veterans and military members
• You must already have a VA loan
• Requires a funding fee
• Requires an appraisal
• Requires a credit check

Alternative or non-prime lending

If you don’t qualify for any of the above programs, seeking out an alternative or non-prime lender could be your best bet.

These lenders don’t use the same standards as FHA, VA, and other government-insured programs, so they typically have less strict requirements when it comes to credit score.

Pros:

• Might allow lower credit scores than other programs
• May allow bankruptcies, foreclosures, etc.

Cons:

• Usually come with higher interest rates and fees
• Requirements vary greatly from one lender to the next

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