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How to Refinance Your Home Loan With Bad Credit

by Lucy Lazarony

How to Refinance Your Home Loan With Bad Credit

Looking for a way to refinance your home when you have bad or blemished credit?

You do have refinancing options and you don’t need perfect credit to qualify.

Check Out HARP 2

One option to consider is HARP 2, the revamped federal Home Affordable Refinance Program.

There are no loan-to-value restrictions in this refinancing program. But there are a few requirements:

  • Your mortgage is owned by Fannie Mae or Freddie Mac.
  • Your mortgage was delivered to Fannie Mae or Freddie Mac by June 1, 2009.
  • You haven’t previously used the Making Home Affordable Refinance Program.
  • Your loan is not an FHA loan.

The aim of HARP 2 is to make it easier for homeowners who owe much more on their homes than the homes are worth to refinance into lower-rate loans.

Not sure if Fannie Mae or Freddie Mac owns your mortgage? Look-up tools from Fannie and Freddie make it easy to find out.

Refinance an FHA Loan

If your home loan is insured by the Federal Housing Administration (FHA), be sure to check out your refinancing options as well.

FHA mortgage programs have more lenient qualifying guidelines than other mortgage programs and are easier to refinance.

A downside to financing a home with an FHA loan is the increasing costs of
mortgage insurance premium (MIP) associated with this type of loan.

According to the U.S Department of Housing and Urban Development to “streamline refinance” an FHA loan, the mortgage you would like to refinance must already be FHA-insured and the mortgage must be current and not delinquent. So folks who fell behind on an FHA-insured mortgage are out of luck.

In addition, no cash may be taken out on FHA mortgages refinanced using the streamlined refinanced process and the refinance results must result in lowering a borrower’s monthly principal and interest.

To learn more about refinancing an FHA loan, contact any mortgage professional that offers these kinds of loans.

Check Your Credit

Homeowners with less-than-stellar credit who would like to refinance can use the free Credit Report Card to gauge how their credit is recovering and make plans to improve their credit.

It also is a good idea to pull your credit report once a year for free from each of the major credit reporting bureaus.


  • Mark

    I’ve had my loan with Bank of America for several years, told recently qualify for HARP 2 Refinance program by loan officer with Bank of America. Loan officer indicated due to my bankruptcy in 2010, bank loan must be reaffirm. As the bank for whatever reason stop doing refinancing on loans which were not reaffirm after a Chapter 7 bankruptcy.

    Additionally mention, the bank changes policies all the time, they are not told why, can only follow the current policy in place. You would have really benefited from the HARP2 refinance program.

    Thereafter was mention, would have to reopen discharge bankruptcy case from 2010, an reaffirm loan, in order to do HARP 2 refinance. Sounds though the bank is defeating the purpose of assisting home owners in need of assistance by changing policy, not allowing a specific group of home owners the benefit of doing a refinance of home under the HARP 2 program.

    My understanding, isn’t this partially the reason HARP 2 program was put into place, assist those whom suffered from the economic down turn. I attempted to use another bank, was told can only do HARP 2 refinance with our current bank mortgage holders.

    • http://www.Credit.com/ Gerri Detweiler

      If you are refinancing the loan with HARP2 that was included in your bankruptcy then you must reaffirm it in order to refinance it. But please talk with your bankruptcy attorney before you make such a major decision. if, in the future, you cannot keep up with the payments you may find yourself either on the hook or forced to file again.

    • ScottSheldonLoans

      Mark,

      You might want to check with a different lender other than Bank of America your servicer. If you are eligible for harp two, you should be able to move forward with Fannie Mae or Freddie Mac whichever entity owns your loan despite the previous bankruptcy from four years ago. It could be the Bank of America has what’s called an investor overlay- more layers of requirements on that program for a borrower with a previous chapter 7, so best to look around and get another lender’s opinion. You wouldn’t be be in California by any chance would you?:)

  • ScottSheldonLoans

    Mary,

    First place to go is to check with your servicer. If that is not an option you will need to provide some sort of way to support the mortgage via on paper income.

    • Terry

      I have a 440 credit score house paid for no loans and work full time snd tried to get equity loan and no one will even talk to me any ideas

  • Hockeyboy88

    Stop refinancing your mortgage and just pay a little extra on the principal every month and you end up paying off the loan sooner and with less interest.
    The banks hate when you think for yourself.

  • vr

    I am having trouble with a second mortgage company. First let me explain that my parents owned the house and had a first and second mortgage on it. The deed was in my name since 2003, both my parents passed away within six months of each other and I really had no time to process what was going to happen. I was able to put the first mortgage in my name but the second has been fighting with me. They even tried to foreclose on the house due to non-payment because I was told when my parents passed away by a representative of this mtg com that the loan was written off. My first mistake was to take their word for it. I was able to make up the payments but now if I am one day late they call me and harass me. They called me 9 times in one day. I have bad credit and can’t find away to pay them off? I don’t want to try and refinance because I am at 2% fixed. Any suggestions would be grateful.

    • http://www.Credit.com/ Gerri Detweiler

      Are you living in the house? Can you afford to keep it? Is there any equity?

  • Jessica

    Hi. I am very confused on refinancing. I purchased my home 3 years ago through owner financing, due to poor credit. My home is worth more than when I purchased and of course I have paid a large amount of the balance. I will need to refinance this year as my owner financing ends next year. I only have a short term agreement for the owner financing and the agreement is I will refinance within the time frame agreed. My credit is slightly better than it was three years ago but it is still poor. Is there anyway I can refinance my home now that I have the equality with poor credit.

    • http://www.credit.com/ Credit.com Credit Experts

      Jessica —
      You can call a lender to see what your options might be, but take care not to have an inquiry done for purposes of getting a loan unless you are relatively confident you will qualify, because a hard inquiry will cause a small, temporary drop in your score. A real estate agent may also be aware of special programs in your area that you might be able to qualify for. It never hurts to ask.

  • Kathy

    My husband and I would like to take out a loan on our home (it currently has no mortgage). We finalized a short sale a little of a year ago, then we were able to sell our small business and other properties and move out of state where we were able to purchase a home outright. We would like to withdrawal some of the equity for improvements and to consolidate a couple of other loans. How long are we going to have to wait for this to happen?

    • http://www.credit.com/ Credit.com Credit Experts

      4 years for a conventional loan, 3 years for an FHA loan

  • Jimi

    My soon to be Ex and I own a house together. We moved out of it 3 years ago because we couldn’t afford it, but by chance a family has been renting it since we moved out and the loan is current. The “loan” is in my wife’s name only. (Because I had health issues in 2006, and no job, I hindered the loan application) The “deed” is in both our names. I have a steady job, bad credit, but now could afford the home, if I could refinance it. Would I apply for a new loan, since I’m not on the current loan? The loan is owned by Fanny, do I have a chance at HARP2?

    • http://www.credit.com/ Credit.com Credit Experts

      From Scott Sheldon: If in the upcoming divorce settlement the property is 100 awarded to you then you should be able to refi with little hiccups so long as you give the settlement doc to the lender if that’s how they decide it should be structured. Alternatively, you should be able to refi it as a non owner , but the programs are limited to conventional not harp 2 (you would have had to have been on the loan at inception) with shoddy credit. If you were to move into the home as your primary residence your options increase with your credit score and history. This would probably be the best best. Key here is to be amicable with your ex if you are not already because they will need to sign off the deed to refi into your name which is why option one may be better. If you are amicable and they are willing to sign off, then give the tenant notice, physically move in and then refi.

  • Sunshine

    I need to refinance my mortgage. I am scared of a finding a non reputable company. My credit is poor. I have equity and I need to pay off debt. I recently came out of a chapter 13 bankruptcy and no one will talk to me. How can I find someone reputable to help me?

    • ScottSheldonLoans

      If you’re in California I can probably help you? Anyway assuming that you’re not, you could always look on line for review for lender in your area who could help or get a recommendation from family or friends. That’s usually how people tell me they find me. As for your Chapter 13 that’s going to be a big challenge in terms of a workaround. Most lenders want it least one year out of the chapter 13 to qualify.

  • ScottSheldonLoans

    The FHA unfortunately does not take too kindly to helping people refinance into a new FHA loan when they are behind on their current one. You say your credit score is shot. Shot like 500 shot? Or shot like 620 shot? If you are the refinance with the lender other than your current servicer collecting your mortgage payment you’re going to need at least 12 months out of no mortgage lates. I would recommend communicating directly with your servicer to see what they can do with your current mortgage since they hold the paper anyway and they are your best bet considering the credit obstacles. I hope this helps.

  • http://www.Credit.com/ Gerri Detweiler

    My recommendation, Justin, is that you talk with a reputable credit counseling agency that also does housing counseling. They should have the expertise to look at your situation and explain which options are available to you. Here’s an article that may help explain what they do: Does Credit Counseling Work?

  • R Michael Maddox

    I am in similar situation. I have an 18 year mortgage on 2012 16×80 mobile home. 2 acres of land paid for. All was appraised at approx. $65,000. I owe $41,000 to 21st Mort. Co. Just for the Home. Payment and Ins. is $579.00 per month. I need to get a refi. with approx. $10,000 cash out to pay off all other debt. My score is 675-695 depending on which one you check. Equifax is the only one that still shows a CH.13 that will be 10 years out in June 20115. BTW I don’t have Prop. Tax due to being Disabled Veteran. I have not had a late payment on ANYTHING in 9.5 years. But I can’t find anyone to refi. my loan. Any Ideas??

    • R. MIchael Maddox

      I see none of these experts replied to my situation. I do need to make an adjustment. I had an NADAguides Value Report done this week. Adj Retail Value is $65,390. Their “Avg. Industry Adjustment To Base Book Value is $98,000 and change. Just did the math. If I could get either refi w/ cash out of $10,000, I could save myself $350.00 per month. Oh Well. Maybe something will come through.

  • Patricia Powers

    I own my home 2002 FTWD 06/03/2011 and 6lots 3 blocks with building on it I’m wonting to do some work that I won’t and trying to get a little money for the new work I won’t done do anyone have a plan for me to get money is Bank Loan the way to try or is there a home improvement plan to get better than that Can anyone help me find something that works better?

  • ScottSheldonLoans

    A new FHA loan on your primary home would probably be the least path of resistance scenario to pursue in reducing your debt payments. Usually, FHA loans will lend up to 85% on a primary home for cash out purposes.

  • valleywithoutabrain

    I am a veteran with a VA guaranteed loan. My current mortgage is at 6.96% and I have 17 years left on a 30 year. My balance is $72500 and the home value is @$135000. I would like to do a cash out refi, getting @ $11K over the balance owed to pay a back due bill and put a new roof on. My credit is the problem as depending on the source a lender uses I have a score that ranges from 560 to 641 depending on the source…what is my best course of action?

    • http://www.veteransunited.com/ Chris Birk

      Thanks for writing and for your service to our country. Credit score benchmarks can vary by lender, but a 620 FICO is a pretty representative one for many VA lenders. You might start with a few lenders to get a clear sense of what your mortgage credit scores are like — it’s possible you already clear that hurdle. Let me know if you wind up falling short.

    • yo

      Don’t get cash out, but refi outta that ridiculous interest rate. Save $ over time for the roof.

  • Kim

    I have owned my home my home for 9 years. I am currently behind on payments due to losing my job of 10 years back in January. I have already used the HARP program in the past so from what I understand I cannot use it again. I am married, but my husband is not on the loan since we met after I bought the home by myself. He has never owned a home & is a veteran so he qualifies for a guaranteed VA loan. The mortgage is very close to going into foreclosure so I’m just wondering if he could use his VA loan to purchase the home from me, even though we’re married & have lived here together for about 8 years? His name is not on the mortgage or the deed. He does have a full time job & also receives a monthly disability check of $250 from the VA, but like myself, he does not have very good credit either. Also I need to mention that I do have some equity built up in the home. I’m just trying to figure out what our best option would be to bring the mortgage current & also possibly take out $5,000-$10,000 extra to pay off all other bills?? We have 2 small children, one of which was diagnosed with Autism at 2 yrs old (daughter) so I’ve decided to stay home with them for a couple years until the youngest (son) starts school so that I can work with & take care of my daughter, which is mostly non-verbal, but we are sinking fast financially! If we could either take out an equity loan on my mortgage, despite being behind on pymts & having bad credit, or if my husband could buy our home from me for a little more than what I owe, then would could pay off all extra debt & be able to live on one income for a while. Any advice or suggestions would be so greatly appreciated!!!

    • http://www.veteransunited.com/ Chris Birk

      @Kim: Thanks for writing and to your husband for his service to our country. He could possibly look at a VA Cash-Out refinance, although he would need to meet a lender’s credit score requirement. Those can vary by lender, but a 620 FICO is a common benchmark.

  • Di

    We have a mortgage that has my parents and my husband and my name on it. We have less than perfect credit. We would like to lower our payments and get my parents names off the loan. We are currently behind on the loan. We live in Illinois. We were in a place where we could not get ahead. We need a fresh start on a clear mortgage. We were served a summons today.

    • http://www.Credit.com/ Gerri Detweiler

      Have you talked with a consumer law attorney about your options? If not, I’d suggest that be your next step. Visit the website of the National Association of Consumer Advocates if you need help finding one in your area.

  • Eva spencer

    I am trying to find lender that can help me with refinancing my home at the $27,886.04. I was made an offer of $5000.00 to buy and be debt clear by the new lender, but I am retired and receiving a pension. This has been one bad ride because of the previous lender that added an escrow to make payments of $7,477.00 a month and then everything through the roof. Also reported an incorrect credit report that I requested by letter to be removed and they refuse. I need help and advice.

    • http://www.Credit.com/ Gerri Detweiler

      I am sorry but I don’t quite understand your question, and we can’t recommend specific lenders.

  • Estree Ray Robinson

    Hello, we are currently struggling to pay our mortgage….currently barely avoiding 30-days late. I am about to go on maternity leave and would really need to refinance to lower our payments, but my husband and I have bad credit. Our home is worth about $850k and we owe $400k, so we have a lot of equity. Our current interest rate is 6%. Are there lenders out there that would refinance us? If so how do we find them? We do not have FHA loan, but if we could get one I’ve heard they are less strict.

  • Mike

    Please HELP! I was divorced 1 yr ago and awarded the opportunity to purchase my ex-wife’s share of the equity. I had tried hard to keep up minimum payments during the lengthy divorce, but eventually I could not pay our joint bills and my own. This resulted in ll of the credit accounts going into collections. After the divorce, I tried to refinance solely in my name. I qualified fine with income,
    but I couldn’t move ahead b/c we had joint credit card debt that the creditors saw fully as my own. We went back to court a few months ago
    and I bargained to pay off both my own and my ex-wife’s credit in exchange for the opportunity to purchase her share of the equity. Per the terms of the 2nd court settlement I paid off $20,000 in joint debt. (A mortgage co. told me that this would be enough to move fwd with my application: WRONG). My FICO score is currently stagnant at 585. I’ve
    been told that it will take 8-12 months for it to rise above 600. I’ve also been told that the minimum credit score to refinance conventional is 620 and FHA is 600. I simply need to get the loan into MY name for now. If I don’t the court insists that I place the home on the market for sale immediately. The current mortgage holder won’t issue a quit-claim. We refinanced through a HARP loan several years ago
    (currently with an APR of 2.0%), so I am ineligible to use HARP again! If I could simply get someone to refinance me into my own home, then I could refinance again down the road when my credit score improves. However, for now, I need to refi or list. Please help!!!

    • http://www.veteransunited.com/ Chris Birk

      @Mike: Thanks for writing. I think you’ll likely need to keep working on your credit score and contacting lenders about their requirements, as credit score benchmarks can vary depending on the lender and the loan type. The average FICO score for an FHA refi in May was 683.

      • Mike

        “I simply need to get the loan into MY name for now. If I don’t the court insists that I place the home on the market for sale immediately.”

        Thanks for replying. Time is not a luxury that I have. There must be some sort of organization that refinance me..

        • http://www.Credit.com/ Gerri Detweiler

          Have you tried talking with a local credit union or community bank? (You say you have equity but you don’t say how much so it’s a little hard to say.) Nevertheless if you have a shot at it, it seems like you need a lender willing to look beyond the score and hold the loan in it’s portfolio. You could also ask around to some local mortgage brokers and see if there is a hard money lender willing to take it on but the interest rates are very high with those loans. Hope you are able to find something that works for you.

          • Mike

            Hi Gerri – That’s EXACTLY what I need! I have 75k of equity in a 200k home. Thanks for the suggestion!!!

  • Leigh Luis

    Struggling and want out! My husband and I are currently in bankruptcy. We have a 1st and 2nd mortgage. I met with my realtor to put the house up for sale and have the payoff quotes from the lender. After all closing costs we will come out with only $200 plus dollars after owning the home for 10 years! The market is great in the area (Texas) but the house prices from block to block can vary as much as 50 – 70k. We need to get out with more money if we are going to sell. We are so house poor! Is there a way to refinance for a lower interest rate? Currently on the 1st, 7.5% and 2nd 9.85%. Ideally would like to combine 1st and 2nd loan for one low interest rate. Thank you.

    • http://www.Credit.com/ Gerri Detweiler

      Have you talked with your bankruptcy attorney about not reaffirming the home loans and possibly doing a deed in lieu of foreclosure? I understand you’d like to get more money for it but you may want to talk with your attorney about cutting your losses. (I am not aware of lenders who will refinance a loan for a low rate while you are in bankruptcy but you could ask your attorney.)

  • tina

    I am wanting to purchase or refinance my parents’ estate mortgage but also need to pay out my brother. My credit scores are improving, but are still in lower 600’s. Does anyone know if this is possible for me to do a HARP loan? Or any kind of loan?

  • Jeff

    Help me break the cycle! I bought my house in 2001. In 2003 I did a second loan for $32k to pay off all my credit cards and credit accounts. I lost my job in 2006. Spent several years on a roller coaster with paying bills. Today I have a decent job of 3 years and so does my wife. We don’t have any credit except house and a car loan. I do have a daughter in college and pay her rent and some tuition, plus we have an 8 year old. The problem is our credit sucks because my 2 house payments suck up all my money each month. I am way overpaying on both home loans. My primary mortgage is at 7.75% and is $1580 per month PITI. My second mortgage is $600 per month interest only! I have literally paid the second mortgage company over $80k the past 12 years and still owe the same amount! I have tried several times to work something out with them and they won’t do anything. I only owe $132k on the primary and $32k on the second for a total of $164k. I had an appraisal done recently and my house is worth $245K. Because of my $2200 a month house payment, I am still robbing Peter to Pay Paul every month. Because I can’t save much money and it seems some event happens every other month that causes extra expenses ($550 for new alternator, $600 for new water heater…etc) I go 30 days late on the primary mortgage every few months. This cycle has been going on for years. At 4.5%, my mortgage payment on $165k should be $1100 PITI. All I want to do is refinance and it would save over $1100 per month. Is there any lender that would look at the fact that if I could refinance, I would not have ANY trouble paying any of my bills on time? This has been so frustrating!

    • http://www.veteransunited.com/ Chris Birk

      @Jeff: Thanks for writing. It would depend in part on your credit score and probably your 12-month payment history. One mortgage late in the last 12 months could make it tough to land a refi even if you have qualifying credit, although policies can vary. Continuing to make that payment on time is key. A secured credit card might help on the credit-boosting front as well.

  • ick

    I have $1000,000 all due dec 2016 I have late payments on my credit report dating from late 2011 my credit scores are in the low 700 which is good, will I have a problem when I come to refi the one million which I have to do in late 2016?

    • http://www.Credit.com/ Gerri Detweiler

      Your credit scores sound decent but they are just one piece of the puzzle. The lender is going to look at the property’s value and things like your income (if a personal loan) or financials (if commercial). It may make sense to meet with a trusted lender now to see what your options are so you can prepare accordingly.

  • ick

    Ps gerri I talked to you early last week about a foreclosue on my credit, well I disputed it and they deleted it took them one week.


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  • Meet The Expert

    lucy_lazarony GravatarLucy Lazarony is a freelance personal finance writer. Her articles have been featured on Bankrate, MoneyRates, MSN Money, and The National Endowment for Financial Education. Prior to freelancing, she worked as a staff writer for Bankrate for seven years. She earned a bachelor's degree in journalism from the University of Florida and spent a summer as an international intern at Richmond, The American International University in London. She lives in South Florida.
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