9 options to refinance a mortgage when you have bad credit

If you have bad credit, you might think your mortgage refinancing options are slim to none. But take heart: It’s 100% possible to refinance a mortgage with a poor credit score.

While not every option on our list is available to every borrower, these nine possibilities let you know what’s out there for low-credit refinances. So, let’s get you up to speed on how your current credit, type of mortgage, and home refinancing options line up.

Read more: Is now a good time to refinance your mortgage?

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When you refinance a mortgage, you replace your current home loan with a new loan on the same property. People refinance for different reasons, but it’s often to snag a lower interest rate or monthly payment. Other borrowers use a cash-out refinance to pull money out of their home’s equity.

Whatever your reasons for refinancing, your credit score plays a role — especially if your score is low because of late or missed mortgage payments. To set yourself up for refinancing success, making on-time payments is essential. Job No. 1 is to show lenders that despite a lower score, you’re committed to your mortgage. Many options below require an on-time payment history of at least six months.

Here are nine options for refinancing with bad credit.

Dig deeper: How to improve your credit score

Speaking with your current lender may be your best path to refinancing with a low credit score. If possible, contact the loan officer you worked with on your existing mortgage. Talking to someone already familiar with your finances can help put you at ease.

By explaining your situation and reasons for refinancing, you may find that this conversation opens up an array of possibilities — some of which might not be refinancing at all. Many lenders offer mortgage forbearances, a temporary payment pause, or other loan modifications that could ease your financial stress.

Learn more: What to do when you’re underwater on your mortgage

To overcome bad credit and refinance your mortgage, consider adding a co-signer to your refi application. Before we go any further, remember that this is a big ask. Your co-signer will be legally on the hook if you miss payments or default on your loan.

Ideally, your co-signer will have good credit — a plus if you hope to lower your current interest rate. Both you and your co-signer will also typically go through the standard underwriting process, including credit checks and income and employment verification. If you’re approved to refinance your mortgage, it’s up to you to keep up your monthly payments to avoid co-signer’s regret. The biggest downside for a co-signer? If you default, they’re still responsible for making the mortgage payments while having no legal claim to the house.

Read more: How co-signing for a mortgage works and what both people should know

You could be in luck if your current mortgage is an FHA loan. The FHA Streamline Refinance program is an option that doesn’t require a review of your credit to qualify. An added bonus? There’s no income verification or debt-to-income ratio (DTI) calculation, either.

One caveat is that you must receive what the FHA calls a “net tangible benefit” by refinancing. That means that refinancing must lower your interest rate or monthly payment by a certain amount established by the FHA. You’ll also need to show a history of on-time mortgage payments for at least six months. The FHA will even overlook one late payment during that timeframe.

Read more: How long does it take to refinance a mortgage?

4. FHA rate-and-term refinance

While you have to have an FHA loan to qualify for the Streamline Refinance option above, anyone can apply for FHA rate-and-term refinancing. Credit score guidelines are generous: 580 for a 96.5% loan-to-value ratio (LTV) and as low as 500 for a 90% LTV.

You can’t take cash out with this option, but you might qualify to roll second and third mortgages into your refinance.

Learn more: Want to refinance your FHA loan? Here are 4 options.

If your current conventional loan is backed by Fannie Mae, its ReFi Now™ loan could get you the refinance you need. You’ll need to earn 100% or less than your area’s median income and have a DTI ratio of 65% or less to qualify. This option also requires a six-month on-time payment history and allows one missed payment in the past 12 months.

Dig deeper: How soon can you refinance your mortgage after buying a house?

Freddie Mac’s ReFi Possible® makes it possible (sorry) for those on the lower end of the income spectrum to refinance — especially if you thought your income might be a barrier. The qualifying criteria are the same as Fannie Mae’s ReFi Now™ program: Your income must be at or below 100% of your area’s median income, you must have a DTI ratio of 65% or less, and you need a history of on-time payments.

Borrowers with a current VA loan and a credit score with a few dings should consider the VA’s streamline refinance. Also known as the VA IRRRL — short for VA Interest Rate Reduction Refinance Loan — this refi option shares many features with the FHA Streamline Refinance. You can skip the home appraisal, credit report pull, and income verification.

A few notes: Borrowers still pay the VA funding fee, which is currently 0.50% of the loan amount. You can either pay it at closing or roll it into your new mortgage principal. Next, the refi must provide a net benefit, like an interest rate or payment reduction. Finally, you’ll need to break even on the refi within three years, including closing costs.

Learn more: Does mortgage preapproval hurt your credit score?

If you have a USDA loan, the USDA streamlined assist refinance could help you refi without the usual headaches. Homeowners can skip the appraisal, credit check, and income verification. You’ll also need to demonstrate that the refinance saves you at least $50 per month, and you need to have a 12-month history of on-time payments. A plus? The USDA streamlined refinance lets you add borrowers to your mortgage.

It could pay off to seek out a lender that specializes in mortgages for those with bad credit. These unique lenders understand your financial challenges and can match your situation with the best loan to achieve your goals.

As you compare mortgage lenders, remember that it’s important to shop around. Every lender has a different set of qualifying criteria and loan options. Also, you could find that while multiple lenders offer the same type of loan, interest rates and closing costs will vary.

Dig deeper: Will refinancing my home hurt my credit score?

It’s possible to refinance with a 500 credit score, but your best bet will be one of the many “streamline” refinance options offered by FHA, USDA, and the VA. These programs don’t require a credit check or income verification. FHA rate-and-term refinancing requires a credit check, but those with scores as low as 500 could be eligible. Also, FHA rate-and-term refinancing is available to anyone — even those without a current FHA mortgage.

FHA loans require a maximum DTI of 50% to 55% — the exact percentage depends on your credit history. FHA also has a minimum credit score requirement of 580 and a down payment of 3.5%, and you must occupy the property as your primary residence.

The lowest credit score to refinance a mortgage will depend on the lender and type of loan. For example, streamlined refinance options with FHA, USDA, and the VA don’t require a credit check and, therefore, don’t have a low score threshold. To be eligible for these refinance loans, your current loan must be backed by the same federal agency. For instance, FHA Streamline Refinance loans are only available to those who already have an FHA-backed mortgage.

This article was edited by Laura Grace Tarpley.