Can I Refinance With Bad Credit?

Refinancing with bad credit is possible, but it usually comes with tighter approval standards, fewer lender options, and higher interest rates and fees than borrowers with stronger credit.

Credit scores range from 300 to 850, but many lenders consider 620 the minimum threshold for refinancing.

Refinancing can be possible with lower credit scores. It’s often used as a way to consolidate debt or lower a monthly payment to help build credit in the long run. The best path depends on your recent payment history, income stability, debt-to-income ratio, and available home equity.

Understanding Refinancing With Bad Credit

When it comes to refinancing, “bad credit” generally refers to a credit score below 620.

While a low score makes refinancing more difficult, it isn’t the only thing lenders look at when deciding if you’re eligible. Recent on-time mortgage payments, steady employment, manageable debt, and meaningful equity can all help offset a weaker credit profile.

Borrowers with poor credit should expect closer scrutiny of their finances. A history of late payments or rising balances may limit options, while consistent payments and declining debt can improve approval odds.

How Credit Score Ranges Affect Refinancing

Credit score ranges are not universal cutoffs, but they help illustrate how approval difficulty and pricing tend to change.

Individual lenders may apply stricter internal requirements than program minimums.

Government-Backed Refinancing Options For Low Credit Scores

Government-backed refinance programs are insured or guaranteed by federal agencies, which allows for more flexible credit standards than conventional loans. These options are commonly used when traditional refinancing is out of reach.

Some streamline refinance programs reduce documentation requirements and may not require a full credit review for qualified borrowers.

These programs are only available if you already have the same type of loan.

FHA Streamline Refinance

An FHA Streamline Refinance is available to current FHA borrowers. It often skips a new appraisal and limits income verification. The refinance must provide a net tangible benefit, such as a lower monthly payment or interest rate.

VA Interest Rate Reduction Refinance Loan (IRRRL)

The VA Interest Rate Reduction Refinance Loan (IRRRL) is designed for eligible veterans with existing VA loans. Underwriting is minimal, and the refinance must demonstrate a clear benefit to the borrower.

USDA Streamlined Assist Refinance

The USDA Streamlined Assist program is available to qualifying rural homeowners with existing USDA loans. It allows simplified documentation and does not require a new appraisal in many cases.

These programs require an existing FHA, VA, or USDA loan and do not allow cash-out.

Non-Prime And Alternative Refinancing Options

Non-prime lenders specialize in borrowers who fall outside traditional credit guidelines. Portfolio lenders may also offer in-house refinancing with flexible underwriting because they keep loans on their own balance sheets.

Private or hard-money lenders focus primarily on property value and available equity rather than credit history. These loans tend to be more expensive and are typically used as short-term solutions.

Using Home Equity When Credit Is Limited

Home equity is the difference between your home’s market value and what you owe on your mortgage.

Refinancing doesn’t require you to tap equity, but some homeowners choose to use it strategically.

There are two main types of refinancing: A rate-and-term refinance, sometimes called a no-cash-out refinance, adjusts your interest rate or loan length without increasing your loan balance.

A cash-out refinance replaces your mortgage with a larger loan and provides the difference in cash. A home equity line of credit offers revolving access to funds and usually carries a variable rate.

But refinancing isn’t the only way to consolidate debt with your home. Home equity loan options, like a fixed-rate home equity loan or a revolving HELOC, let you tap into your equity without changing your existing mortgage. If you already have a great rate and don’t want to alter the terms of your mortgage, a HELOC or home equity loan are possibilities.

You might be able to get both a HELOC and a home equity loan with poor credit, but you’ll need strong mitigating factors.

Using home equity increases financial risk. Falling behind on payments can put your home at risk.

When Refinancing With Bad Credit Makes Financial Sense

Refinancing may be worthwhile if the long-term savings outweigh the upfront costs. Many homeowners evaluate this by calculating a break-even point.

To estimate break-even timing, divide total closing costs by your expected monthly savings. For example, if closing costs are $4,200 and your monthly savings are $140, the break-even point is 30 months. If you plan to stay in the home longer than that, refinancing may make sense.

Closing costs for a refinance often fall between $3,500 and $5,500. In some cases, waiting to improve your credit can result in significantly better offers than refinancing immediately.

You can use our calculator to explore different break-even scenarios. Keep in mind this calculator is educational only, and you’ll need to consult with an expert to get an idea of your personal breakeven timing.

How To Prepare To Refinance With Bad Credit

Start by reviewing your credit reports and disputing any errors. Even small corrections can improve your score. Gather income documentation, bank statements, and your current mortgage information before applying.

Starting with your existing loan servicer can sometimes open the door to streamlined refinance options. Some borrowers also consider adding a co-signer with strong credit, though this creates shared financial responsibility and should be approached carefully.

The Bottom Line

Refinancing with bad credit can be possible, but it comes with restrictions.

Borrowers with bad credit should expect higher interest rates, fewer lender options, and larger upfront fees. A refinance also triggers a hard credit inquiry, which can cause a small, temporary drop in your credit score.

Cash-out refinances and equity lines increase exposure if your financial situation changes. Comparing multiple offers and focusing on total costs, not just the interest rate, is critical.

Frequently Asked Questions

What Credit Score Do I Need To Refinance With Bad Credit?

Many lenders look for a credit score around 620. Some government-backed programs may allow lower scores if other eligibility requirements are met.

Does Refinancing With Bad Credit Require A Credit Check?

Most refinances include a credit check that can temporarily lower your score. Certain streamline programs limit the scope of credit review for eligible borrowers.

How Much Home Equity Is Needed To Refinance With Bad Credit?

Conventional lenders often require around 20 percent equity. Government-backed programs may allow less equity if program requirements are met.

Will Refinancing Hurt My Credit Score?

You may see a small, temporary dip due to the hard inquiry. Consistent on-time payments after refinancing typically help your score recover.

What Documents Are Required To Refinance With Bad Credit?

Most lenders request income verification, bank statements, a mortgage statement, and details about debts and assets. Streamline programs may require fewer documents.