How to Refinance a Home with Bad Credit

Posted by Lenda on March 06, 2018

The average FICO credit score hovers around 695, but if you fall below the average, all is not lost. There are still ways that you can buy or refinance a home. Through persistence, planning, and financial strategy, you can achieve your goals and refinance your home.

If you’re looking to refinance your home but have less than stellar credit, here are some tips for making it happen:


1. Work on improving your credit score

Some great tips for keeping your credit score healthy include: not paying bills late, not closing old accounts, paying attention to your credit report, and not applying for more lines of credit. All of these can help you secure the home loan you’re looking for.

And remember, there are ways to improve your score. One of the biggest impacts on credit scores is having credit cards with greater than 30% utilization. A few tips for managing your credit card bills are options such as becoming an authorized user on an account with a family member who has great credit, watching for errors on your credit file, reducing debt and spending on credit cards, preserving credit history, and consolidating credit cards wisely, if at all.


2. Speak with several lenders

Not all refinance programs and guidelines are the same. Lenda recommends you shop around and speak to several lenders before you decide to lock in your loans so you understand what options are available to you, for the lowest price.

Whether you want to learn how mortgages work or are ready to shop rates and programs, our team at Lenda can help.


3. Consider getting a cosigner

This is a big ask even for family members, etc. Cosigners with good/great credit can help you get the loan you’re looking for but it may also put them at risk if you do not make the loan payments and if you do not make them on time. This is something to consider if you have family or friends who are willing to cosign for you.


4. You might have FHA refinance options

The FHA Streamline Refinance allows you to reduce the interest rate on the current home loan quickly and often without an appraisal. This refinance option cuts down on the amount of paperwork that has to be completed by the lender, saving you time and money.


5. Act quickly for HARP

Borrowers who have stayed up to date on their mortgages and have loans owned by Freddie Mac or Fannie Mae can use HARP to refinance their home. HARP enables borrowers with little or no equity to refinance into a more affordable mortgage without new or additional mortgage insurance. With HARP, you can get a lower interest rate, shorter loan term and change from an adjustable to fixed-rate mortgage.

HARP can help homeowners:

  • Reduce interest rates
  • Secure a fixed-rate mortgage
  • Build equity faster
  • Lower closing costs because an appraisal is not usually required

Homeowners have until December 31, 2018 to apply for a HARP refinance. No minimum credit score is necessary, visit for details.


6. You might have unique options available

Many lenders offer streamlined alternative to existing borrowers to lower costs and make refinancing easily accessible. Many banks have streamline refinance programs that allow for lower credit score requirements, limited paperwork, and easier asset and income verification. Like mention with HARP, many of these don’t require an appraisal either.

The VA home loan program for veterans and the USDA home loan program in rural and suburban neighborhoods offer streamline refinancing.

The VA offers a streamlines VA loan to VA loan refinance, also called the “Interest Rate Reduction Refinancing Loan.” VA streamline refinancing is simple to execute and can save a lot of money now that the mortgage rates are lower. The VA doesn’t require an appraisal or credit underwriting package and you can also roll the refinancing costs into a new loan or opt for a no cost refinance.

The USDA streamline program was rolled out nationally this year after starting in 2012 in 34 states. The program is now available in all 50 states. The USDA loans close quickly because of the minimal eligibility requirements. There are no credit report requirements, no home appraisal needed and no property inspection requirements. The loans also allows you to transfer escrow charges and closings costs to the new loan amount, giving homeowners a no cash out of pocket refinance.


Know your options when you refinance a home with bad credit

Use our refinance calculator tool to get a loan estimate to help you determine the right option that will work for you. Contact us today with any questions you may have.

Topics: Refinancing, Personal Finance

Thoughts or ideas you'd like to share with us? Add a comment below.