How to refinance your mortgage with bad credit

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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 need to know:

How to refinance a mortgage with bad credit

If your credit is low and you don’t know where to start, follow these steps to get started:

  1. Improve Your Credit Score
  2. Consider a co-borrower
  3. Compare mortgage refinancing programs for bad credit
  4. Check with your current lender
  5. Compare the rates of several lenders

1. Improve your credit score

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

To improve your credit quickly, here are some solutions you can try:

  • Request a credit limit 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 trusted spouse, partner, or 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 income, giving you a better chance of approval if your co-borrower is more creditworthy.

Just make sure the co-borrower understands their obligations. For example, if you are unable to make payments on the loan, they will have to pay it back.

3. Compare Mortgage Refinance Programs For Bad Credit

Then you should research bad credit refinance programs to see what loans you might qualify for. Having a good idea of ​​the loan product you will be using can help you when looking for lenders.

Find out: Credit score needed to refinance

4. Check with your current lender

Get a refinance quote from your current lender. If you’ve always paid your loan on time and have a good history with them, they might be willing to refinance your loan without a credit check – or at least look beyond that score and factor in other factors. when evaluating your request.

A current, strong 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 the rates of several lenders

Comparing the rates of 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 allows you to search for prequalified refinance 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: When to refinance a mortgage: is now the best time?

Pros and Cons of Mortgage Refinance Options for Bad Credit

FHA rate and term refinancing

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.

Benefits:

  • 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 limit applies with a lower credit score

The inconvenients:

  • Requires mortgage insurance
  • No withdrawal allowed
  • Requires new assessment

To learn: How to get the best mortgage rates

Refinancing of FHA collections

With a refinance with withdrawal, you can replace your existing mortgage and withdraw additional money from the equity in your home.

Remember that your new loan will have a higher balance, which could mean a higher monthly payment.

Benefits:

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

The inconvenients:

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

FHA streamline refinancing

The streamlined FHA program is designed to facilitate the refinancing process for existing FHA borrowers.

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

Benefits:

  • A credit check may not be required
  • Assessment may not be required

The inconvenients:

  • Requires mortgage insurance
  • Must already have an FHA loan

VA rate and term refinancing (IRRRL)

the Department of Veterans Affairs also offers an interest rate and term refinancing program called the Interest Rate Reduction Refinance Loan (IRRRL).

It is only available to eligible service members, veterans, and their spouses (in limited circumstances).

Benefits:

  • No credit or income checks
  • No rating
  • Can integrate your refinancing costs into your loan
  • No mortgage insurance
  • Could refinance up to 100% of the value of your home

The inconvenients:

  • Only available to qualifying veterans and military personnel
  • You must already have a VA loan
  • Requires financing fees

To verify: Refinancing closing costs: how to reduce and avoid fees

Refinancing of VA collection

You can also do cash refinancing of existing VA loans whether you are a military or a veteran. The VA also allows you to finance your closing costs, which makes refinancing very affordable.

Benefits:

  • Can integrate your refinancing costs into your loan
  • No mortgage insurance
  • Could refinance up to 100% of the value of your home

The inconvenients:

  • Only available to qualifying veterans and military personnel
  • You must already have a VA loan
  • Requires financing fees
  • Requires assessment
  • Requires a credit check

Check Out: VA Refinance: 3 Ways To Refinance A VA Loan

Alternative or non-privileged loans

If you don’t qualify for any of the above programs, finding an alternative or non-preferred lender might be your best bet.

These lenders do not use the same standards as the FHA, VA, and other government-insured programs, so they generally have less stringent credit score requirements.

Benefits:

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

The inconvenients:

  • Usually comes with higher interest rates and fees
  • Requirements vary widely from lender to lender
Find out if refinancing is right for you
  • Real rates from several lenders – In 3 minutes, get real prequalified rates without impacting your credit score.
  • Smart technology – We streamline the questions you need to answer and automate the document upload process.
  • End-to-end experience – Complete the entire creation process, from price comparison to closing, all on Credible.

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About the Author

Aly J. Yale

Aly J. Yale is a mortgage and real estate authority. His work has been published in Forbes, Fox Business, The Motley Fool, Bankrate, The Balance, etc.

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