Your credit score gives lenders a sense of how likely you are to make regular, on-time mortgage payments. So, it’s a critical part of the approval process for mortgage refinancing.
Typically, homeowners need at least a 620 FICO score to refinance. But if you don’t meet this threshold, you still have options.
Below, CNBC Select outlines how to refinance with less-than-perfect credit.
How to refinance with bad credit
The first thing you should do when considering a refinance is to see what options you have with your current lender.
If you’re trying to get a lower rate, adjust your terms or shrink your monthly mortgage payments, they may allow you to modify your rate or recast your mortgage without refinancing.
FHA loan refinancing
The Federal Housing Administration (FHA) offers several refinancing options, including some for those with FHA loans or conventional mortgages.
Borrowers with existing can refinance with an or simple refinance and get better rates or terms, although you won’t be able to get extra cash out.
You must be at least 210 days out from closing on your existing loan and demonstrate that you have made on-time payments.
The key difference is that, with a simple refinance, you can defer closing costs by rolling them into the mortgage and paying them back over the loan term. An FHA simple refinance does have more strict qualifications: Borrowers need a 580 credit score and 3.5% in home equity.
There is no credit score or equity requirement for an FHA Streamline Refinance but borrowers must show that their new monthly rate will be lower.
Borrowers with a conventional loan can also turn it into an FHA cash-out refinance with only a 580 credit score, 15% equity and a maximum debt-to-income ratio of 43%.
Rocket Mortgage and LoanDepot offer all three types of FHA refinancing.
Rocket Mortgage
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Annual Percentage Rate (APR)
Apply online for personalized rates; fixed-rate and adjustable-rate mortgages are available.
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Types of loans
Conventional loans, FHA loans, VA loans, Jumbo loans, low-down-payment mortgages
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Terms
10-, 15- and 30-year fixed-term conventional loans, 30-year VA and FHA loans, custom mortgages with fixed-rate terms from 8 to 29 years.
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Credit needed
620 for conventional loans
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Minimum down payment
0% for VA, 1% for RocketONE+, 3% for conventional, 3.5% for FHA, 10% to 15% for jumbo
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Already have a mortgage through Rocket Mortgage or looking to start one? Check out the Rocket Visa Signature Card to learn how you can earn rewards.
LoanDepot
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Annual Percentage Rate (APR)
Apply online for personalized rates
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Types of loans
Conventional loan, FHA loan, Jumbo loan, VA loan, renovation loan, HELOC and adjustable-rate mortgage (ARM)
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Terms
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Credit needed
As low as 500 for FHA loans with a 10% downpayment; 580 for FHA loans with a 3.5% down payment
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Minimum down payment
Starting at 3.5% for an FHA loan
FHA refinance options: at a glance
| Streamline Refinance | Simple Refinance | Cash-out Refinance | |
|---|---|---|---|
| Available to | Those with existing FHA loan | Those with existing FHA loan | Those with existing FHA loan or another type of mortgage |
| Credit score requirement | None | 580 | 580 |
| Equity | None | 3.5% | 15% |
| Loan status requirements | 210 days and six payments since closing on the existing loan; no missed payments in the past year | 210 days and six payments since closing on the existing loan; no missed payments in the past year | Existing loan must be in good standing |
| Other requirements | Must show refinance will lower monthly payment, result in a lower rate or convert loan to fixed-rate | None | Debt-to-income ratio of no more than 43%, must submit to home appraisal |
| Cash-out option | No | No more than $500 | Yes |
| Who’s it for? | FHA loan borrowers looking to get lower rate, lower monthly payment or switch to a | FHA loan borrower looking to refinance and roll closing costs into new loan | Mortgage borrower with less-than-perfect credit looking to get a cash-out refinance |
VA and USDA loan refinancing
Veterans United
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Annual Percentage Rate (APR)
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Types of loans
Conventional, jumbo, refinance, FHA, USDA, refinance
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Terms
10-, 15-, 20-, 25- and 30-year fixed-rate
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Credit needed
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Minimum down payment
0% for VA loan, 3% for conventional, 3.5% for FHA
Pros
- Available in all 50 states
- Specializes in home loans for veterans
- Largest VA loan lender
- 24/7 customer service line
Cons
- Locations in only 16 states
- No HELOC or home equity loan options
If you have a USDA mortgage, USDA’s Streamline Assist Refinancing has more flexible credit score requirements and no appraisal or home inspection is required. The loan must have been funded at least 365 days ago and payments must have been on time for the last six months.
While it doesn’t offer USDA purchase loans, Pennymac has USDA Streamline Assist Refinancing available nationwide.
Pennymac
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Annual Percentage Rate (APR)
Fixed-rate and adjustable-rate available, apply online for rates.
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Types of loans
Conventional, FHA loans, VA loans, Jumbo loans
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Terms
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Credit needed
620 for conventional and VA loans, 580 for FHA loans
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Minimum down payment
Fannie Mae and Freddie Mac refinancing
Government-backed mortgage providers Fannie Mae and Freddie Mac have rate-and-term refinancing for homeowners with weak credit: If you make 100% of the area median income or less you may qualify for Fannie Mae’s RefiNow or Freddie Mac’s Refi Possible.
In addition to flexible credit requirements, they accept debt-to-income ratios of 65%, much higher than most lenders. Your existing mortgage must have been signed at least one year ago, however
Non-qualifying mortgage refinancing
Because they don’t have to follow Consumer Financial Protection Bureau guidelines, non-qualifying (or non-QM) mortgages have more flexible credit score requirements.
But they have higher mortgage rates — two points higher than traditional mortgages, in many cases. So, non-QM refinancing isn’t a good option if your goal is to get a lower rate.
Who should consider non-QM refinancing?
- Borrowers with bad credit who are looking to get a cash-out refinance
- Borrowers who don’t have a Social Security number but do have an Individual Taxpayer Identification Number (ITIN)
- Borrowers with gaps in employment or unconventional employment history
- Borrowers who use assets instead of monthly income to qualify
- Medical professionals who are still in training.
If these loan options don’t work for you, you can ask a friend or family member to co-sign the new loan. Co-signing will impact their credit score and debt-to-income ratio. And even though they’d be responsible for the debt if you failed to make payments, they have no legal claim on the property.
If that’s not an option, you can take time to improve your credit score before applying for refinancing. Making on-time payments, keeping your credit utilization rate under 10% and paying off debt over a year can help you raise your credit score by 100 points, according to a Lending Tree study.
Mortgage refinance FAQs
What credit score do you need to refinance a mortgage?
Most lenders require a 620 credit score to qualify for mortgage refinancing. However, some government-backed loans and non-QM loans do not require a credit score at all.
Can I get a lower rate without refinancing my mortgage?
It’s possible to lower your mortgage rate without refinancing if your lender offers a rate modification. You’ll probably still need to pay a fee, but it won’t cost as much as closing on a new loan.
How long do you have to wait before refinancing your mortgage?
Typically, there is a six-month waiting period before you’re able to refinance.
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