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How to Refinance Your Home Loan With Bad Credit

October 17, 2013 by Lucy Lazarony

How To Refinance 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.

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Meet Our Experts

Lucy Lazarony Lucy 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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