How to Refinance with Bad Credit

Are you curious about refinancing? When you refinance your mortgage, you’re basically replacing that mortgage with a different loan. Your lender will then use that new mortgage to pay off the old one first, so you’ll only have one monthly payment.

A refinance can have different interest rates and terms—which will hopefully help your finances. A lower interest rate might lower your payments. And if you have a shorter term, you could pay the new loan off faster.

But what if you have bad credit? Can you even refinance with bad credit? The short answer: yes. You definitely have options. Find out more below.

In This Piece:

Can You Refinance with Bad Credit?

Whether or not you get approved for a mortgage can depend a lot on your credit score. But qualifying for a mortgage loan—whether it’s a refi or a new purchase—isn’t impossible with bad credit. In fact, with loan programs such as the Federal Housing Administration, you might get approval with a credit score as low as 500.

Five Options for Refinancing with Bad Credit

Even if you have poor credit, refinancing your home loan is completely doable. Here are some options to consider:

1. Talk to Your Current Lender

If you’re in good standing with your current mortgage lender, talk to them about refinance options. Being in good standing means that you’ve regularly made on-time mortgage payments and haven’t had any issues with your lender.

Lenders make money on your mortgage. If you want to refinance to extend your mortgage payments—to reduce your monthly payments, for example—the lender could make more money in the future off your loan. Your current lender may want to keep your business, so they’re probably willing to work with you.

2. Use a Cosigner

If you’re not in good standing with your lender or they don’t give you options, you might consider working with a cosigner. A cosigner is someone who has good credit and is willing to be responsible for the mortgage payments if you don’t make them.

Obviously, this is a huge commitment. The cosigner might need to be motivated to help you, and will definitely need to trust you. If you’re attempting this approach, make sure you have a strong financial plan to show your consigner that you’ll make timely payments.

3. Use an FHA Streamline, Simple or Cash-Out Refinance Loan

FHA-backed mortgages are known to have less-strict credit requirements, including refinances. If you’re looking to refinance with bad credit and late payments, you might consider FHA programs—especially if you already have an FHA loan.

Streamline FHA Refinance

Streamline FHA refinance programs are for those with an FHA mortgage who want to refinance with an FHA loan. Your mortgage must be current, and you can’t get more than $500 cash out of this refinance. Appraisals aren’t required for these loans.

There are two types of Streamline loans. One is credit qualifying, where you provide the income and credit documentation you normally would when getting a mortgage. If you’re taking one of the borrowers off the mortgage during the refi, you must use this option.

The other option is non-credit qualifying. At least some credit review—and a review of past performance on your existing mortgage—is required. But it may not be as comprehensive as a credit qualifying loan.

Simple Refinance

Simple refinance is another option that doesn’t allow cash-out. This program is only relevant for refinances on primary residences or a secondary residence with HUD approval. You also have to be up-to-date on mortgage payments.

Cash-Out Refinance

FHA cash-out refinance programs let you get some cash back during refinance if you have equity in your home. You’re limited to 85% to 95% of equity, depending on the status of your current mortgage.

To qualify, you must have had the property for at least 12 months and made the last 12 mortgage payments within the month they were due. Other credit and financial factors may also apply.

4. Apply for a VA Refi Program

The VA provides several refinance options for those who are eligible because they’re qualifying veterans, active-duty service members or eligible family members. As with FHA refinance options, you can find programs that support straight refis or cash-out refis.

Interest Rate Reduction Refinance Loan

This is a refinance option that gets veterans a lower interest rate on their mortgage. Here’s who’s eligible:

  • Veterans
  • Active-duty service members
  • Members of the National Guard or Reserves called to active duty
  • Some surviving spouses
  • Current Reserve and National Guard members (after six years of qualifying service)

Cash-Out Refinance

This VA refinance has the same eligibility requirements as the Interest Rate Reduction Refinance Loan. The loans typically come at market rates and include a VA funding fee.

5. Consider the USDA Streamlined-Assist Refinance Program

The USDA offers a few refinance programs, but notes that the Streamlined-Assist refi is the most popular. It doesn’t require an appraisal unless a subsidy is involved. A full credit review is not required. However, the loan must have been paid on time for the previous 12 months.

Improve Your Credit Before You Refinance

If you can’t find a refinance that works with your credit score—or you don’t find one that works for you—you might want to improve your credit before applying for a refi. Start by accessing 28 of your FICO scores via ExtraCredit.

You can improve your credit by:

Find the Right Mortgage for You

No matter where you’re at, finding a mortgage is an exciting—and overwhelming—process. Whether you’re ready to start looking for a refinance now or want to wait until you’ve improved your credit, browse options for mortgages and rates on

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