Can I refinance my mortgage with bad credit?

How to refinance my mortgage with bad credit

Despite common belief, bad credit doesn’t necessarily prevent you from refinancing your mortgage. Lower credit scores may pose difficulties, but various alternatives and strategies can help you.

Lenders check credit scores, income, job stability, debt-to-income ratio, and home equity when you apply to refinance. So, even with a poor credit score, you may still qualify for a refinance if other financial aspects are strong.

Do you want to see how much you might be able to save with a mortgage refinance? Use our refinance calculator to get a better idea of what a mortgage refinance could look like.

Should I refinance with bad credit?

Yes, it’s possible to refinance your mortgage with bad credit. However, understand that your options may be more limited. Lenders prefer borrowers with strong credit since it indicates lower risk.

Despite having poor credit, certain programs like the Federal Housing Administration (FHA) Streamline refinance can help. These programs have relaxed guidelines, focusing more on your payment history than credit score.

However, refinancing with bad credit likely means receiving less favorable terms, such as higher interest rates. It’s essential to determine if the benefits outweigh the costs. Consult a mortgage refinance expert to understand if this decision is right for you. 

What’s the process for refinancing a mortgage?

If you’re looking to refinance your mortgage, even with bad credit, the process will be similar to the following:

1.     Determine your credit score:

Before starting the refinancing process, check your credit score. Even if you think it’s bad, it’s important to know exactly where you stand. This will also give you an opportunity to look for any errors on your credit report that you can fix to improve your score.

2.     Research options:

Different lenders have different criteria for what they consider acceptable credit. Do your research to find lenders who are more lenient or specialize in bad-credit refinancing.

3.     Consider government programs:

There are several government programs designed to help homeowners refinance their mortgage even with bad credit. Look into options like the Home Affordable Refinance Program (HARP) or the FHA Streamline Refinance program.

4.     Prepare your application:

As with any mortgage application, you’ll need to provide documentation of your income, debts, and other financial details.

5.     Consider a co-signer:

If your credit score is really low, you might consider asking someone with a better credit score to co-sign the refinance. If you have a co-signer, you can get a lower rate. However, if you fail to make payments, the co-signer will be responsible for paying off the loan.

6.     Keep up with your payments:

The most important thing you can do to improve your credit score is to make your payments on time.

7.     Close on the new loan:

Once your application is approved and you agree to the terms, we will proceed with the final step of refinancing. This final step is known as closing on the new loan. You’ll need to carefully review all of the terms before signing.

Tips & advice for getting a mortgage refinance with bad credit

Having poor credit can make mortgage refinance challenging, but not impossible. There are lenders who cater to borrowers with less-than-stellar credit. Focus on improving your credit score, reducing your debt-to-income ratio, and demonstrating consistent income. Consider government-backed refinance programs, as they often have more flexible credit requirements.

Know Your Credit Score

The first step in getting a mortgage refinance with bad credit is understanding your credit score. You can obtain your credit report for free once a year from each of the three main credit bureaus. This will allow you to see what’s affecting your credit score and what you can do to improve it.

Research on Lenders

Some lenders specialize in refinancing for people with bad credit. Do some research to find a lender that’s a good fit for you and your financial situation.

Consider FHA Streamline Refinance

If you have an FHA loan, you might be eligible for an FHA Streamline Refinance. Speak with a mortgage refinance expert to get additional information on this type of refinance.

Improve Your Credit

It may take time, but improving your credit score can increase your chances of getting a refinance. Pay your bills on time, pay down debt and avoid new debt to start building your credit score.

Save for a Larger Down Payment

A larger down payment can offset the risk lenders take on when refinancing a borrower with bad credit. Start saving to increase your down payment.

Show Proof of Income

Providing proof of a stable income can also increase your odds of getting approved. Gather recent paystubs, tax returns, and other proof of income before applying for a refinance.

Consider a Co-Signer

If you’re still having trouble getting approved for a refinance, consider asking a trusted family member or friend with good credit to co-sign the loan. This can greatly increase your chances of approval.

How can I avoid a bad credit refinance?

Avoiding a bad credit refinance entails deliberate and vigilant planning as well as smart decision-making.

The process should begin with gaining a comprehensive understanding of your credit score.

This score reflects your creditworthiness and is a critical factor that lenders consider when deciding loan approval and interest rates. The higher your score, the more favorable the terms you’re likely to get in any financial dealing, particularly refinancing.

Also, consider working towards improving your credit score before moving forward with any refinancing plans. While it may seem like a daunting task and might take some time, the benefits of a better credit score are quite rewarding.

A better credit score means you pay less interest on your loan, saving you money over time.

How can I avoid a bad credit refinance?

Are you ready to look into a mortgage refinance? Even if you have bad credit, you might be eligible to refinance your mortgage. Begin the process by applying to have your mortgage refinanced by Owning.

Getting a lower payment, shorter term, or taking cash out of your home equity is closer than you think!

Using funds from a Cash-out Refinance to consolidate debt may result in the debt taking longer to pay off as it will be combined with borrower’s mortgage principle amount and will be paid off over the full loan term. Contact Owning for more information.

Savings, if any, vary based on consumer’s credit profile, interest rate availability, and other factors. Contact Owning, Inc. for current rates. Restrictions apply.

Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Restrictions may apply, contact Owning for current rates and for more information.

All information provided in this publication is for informational and educational purposes only, and in no way is any of the content contained herein to be construed as financial, investment, or legal advice or instruction. Owning, Inc. does not guarantee the quality, accuracy, completeness or timelines of the information in this publication. While efforts are made to verify the information provided, the information should not be assumed to be error free. Some information in the publication may have been provided by third parties and has not necessarily been verified by Owning, Inc. Owning, Inc. its affiliates and subsidiaries do not assume any liability for the information contained herein, be it direct, indirect, consequential, special, or exemplary, or other damages whatsoever and howsoever caused, arising out of or in connection with the use of this publication or in reliance on the information, including any personal or pecuniary loss, whether the action is in contract, tort (including negligence) or other tortious action. Owning does not provide tax advice. Please contact your tax adviser for any tax related questions.