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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.

    • 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


      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


    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.

  • 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.

    • Gerri Detweiler

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

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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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