How to Refinance With Bad Credit

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Contributor, Benzinga
October 25, 2022

Refinancing with bad credit is not only possible, but there are several options at every borrower’s disposal. Having bad credit doesn’t mean you’re stuck, it just means you need to dive deeper for the solution. Read on to find a few helpful options you may be able to take advantage of to refinance your loan — even with bad credit. 

How to Refinance With Bad Credit

Mortgage refinancing is on every borrower’s mind at some point. The mortgage is the largest bill for most homeowners, so it makes sense to start there when looking to cut corners. Luckily, there are options for you to explore when looking to refinance with bad credit, possibly saving you money each month and setting yourself up for a more successful future. 

Take a look at three refinance opportunities for borrowers with bad credit:

Cash-Out Refinance

If you have equity in your home, you are already in a good spot. Gaining equity comes from the value of your home increasing because of market changes, recently sold homes in your area, and paying down the principal on your mortgage. 

In a cash-out refinance, you can borrow from your equity and replace your old mortgage with a new one. The new mortgage will include the amount you borrowed plus your old mortgage principal. However, the amount you borrowed will be given to you in cash. 

This is a great option for borrowers with equity in their homes who could use the cash to pay down other bills and get back on their feet. If you can manage a cash-out refinance, take the cash to pay off credit cards and other high-interest bills. Even with mortgage rates increasing, they are nowhere near the average credit card rates. 

The money from your home’s equity can also be used for home improvements and needed repairs that could cut down on heating and cooling bills in the long run. 

This type of mortgage refinancing requires a minimum credit score of 620 with most lenders, so it’s important to know and monitor your credit score. 

Refinance with a Nonoccupying Co-Client

Refinancing with bad credit can make your application look less than desirable to lenders. Having a strong non-occupying co-client can help ensure your refinancing application gets the best rates and terms available to you. 

A co-client (or co-signer) is anyone who would be willing to vouch for you and is in a good financial situation with great credit. A lender will review both you and your co-signer’s credit score, income and assets. Many times this is a parent, another family member or a close friend.

There is a risk to your co-signer, though, so you need to be sure that you will be able to keep up with your mortgage payments. If you fall behind on payments the bank will come after your non-occupying co-client for the mortgage payments, as they have agreed to take on that responsibility as a co-signer. This can make for an awkward future relationship between you and your family member or friend. 

Get an FHA Streamline Refinance

Borrowers who already have an FHA loan may qualify for an FHA Streamline Refinance. This is a relatively fast and easy process if you meet the guidelines and requirements. For example; you must already have an FHA loan you’ve been making on-time payments on for six full months and net a tangible benefit. 

FHA guidelines require that you get a lower interest rate or lower monthly payment for your net tangible benefit. If your objective was to reduce the length of the loan, your payments cannot increase by more than $50, and you cannot extend your loan term for more than 12 years. 

Candidates for an FHA Streamline Refinance may not need to have a home appraisal, as this type of refinancing is not based on the home’s value but instead on what is owed on the loan. Even if a home is worth less than the loan balance, this may still be a viable refinance option.

A noncredit-qualifying option is also possible. Minimal documentation is required if you meet the FHA guidelines, which is how this type of mortgage refinancing can be done quickly and easily.   

Should You Change Lenders When Refinancing?

Shopping around for the best rates and options has become common practice when dealing with mortgage companies. Comparing quotes with different lenders can help you to make the smartest financial decision for your situation.

  •  Lenders offer competitive rates and fees: In addition to offering competitive interest rates, lenders also offer variations in fees. Mortgage insurance premiums, loan origination fees and mortgage points can be structured differently by each lender. You can compare all of these factors to find the right mix of affordable rates, terms and fees for you.
  • Specialists may have flexibility: Lenders who specialize in first-time home buyers, self-employed borrowers, VA loans and FHA loans may have certain programs they can offer within their company that can be more favorable than other lenders. They could have options available to you that you weren’t even aware of. 
  • Communication preference: Communication is also a large part of finding the right lender for your refinance. Many lenders offer completely online platforms, with emails being the main form of communication. Others may call on the phone. Some offer 24/7 assistance or in-person meetings. Look for lenders who fit best with your lifestyle, offer quicker closings and detailed follow-up. 

Advantages of Keeping Your Lender

Staying with your current lender can have its advantages as well. If you have been happy with the services thus far and you were satisfied with the loan process, there may be no reason to change lenders. 

  • Quick and easy process: Because your lender already has all of your information and is familiar with your loan history, minimal documents and information should be needed. This can make for a faster refinancing process.
  • Your lender may offer lower fees: If you are a strong candidate for a refinance and established a good relationship with your lender, it may offer you better rates to keep you as a client. It may even be able to cut some closing costs, waive the appraisal or give you another discount to get you to stay. 

If you have shopped around and found better rates elsewhere, it’s worth a shot to try to negotiate with your current lender. If they can match the best rates and terms that you’ve found with other lenders, it may be worth it to stay with them simply for the convenience and ease of the application and to keep the same payment platform. 

Preparing to Refinance a Loan

To prepare for a refinance, here are a few tips to get you on your way to a successful transaction.

  1. Improve your credit: If you have bad credit, there are options to try. However, improving your credit will help you to get better rates and terms and open up more options for you. Know your credit score, keep an eye on it and work on improving it.
  1. Know your goals: Having a plan to start with will help you to identify what questions to ask and how to find the best lender. Is your goal to have lower mortgage payments? Or to pay your mortgage off quicker? Is it to attain money for other home improvements or pay off some bills? Having a clear goal will help you make the best decision.
  1. Know the value of your home: While not every refinancing loan will require an appraisal, it is important to know the value of your home. Check online to see what other homes similar to yours have recently sold for in your housing market. Compare your current value to the principal on your current loan. Does it look like you have a decent amount of equity in your home? Or do you owe more than your home is worth? Know your home value, or at least have a good idea about it when preparing for a refinance. 
  1. Shop around or negotiate with your lender: Begin the process by shopping around to see what different lenders offer in terms of rates, fees, communication and timelines. If you are satisfied with your lender, try to negotiate with what you’ve found and decide on the best path for you. 

Compare Refinancing Mortgage Lenders

Benzinga offers insight and reviews on lenders that are ready and able to help you refinance with bad credit. You just need to ask about the available options.  

Frequently Asked Questions


Can you refinance with a 500 credit score?


Refinancing with a 500 credit score will certainly limit your options. However, it’s not impossible. Some lenders offer special programs with no minimum credit requirements, but working to improve your credit would be helpful. 


Can you refinance with a 600 credit score?


Certain lenders will allow you to refinance with a 600 credit score. A 580 score is the minimum requirement for some lenders, while a 620 can allow you to refinance to a conventional loan. 

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