Can You Refinance Your Home Loan with Bad Credit?

Are you looking to refinance your home loan but have bad credit? It may seem like an impossible task but there are still options available! Learn more about how to refinance with bad credit here.

Can You Refinance Your Home Loan with Bad Credit?

Are you looking to refinance your home loan but have bad credit? It may seem like an impossible task, but there are still options available to you. One option is to apply for refinancing with a non-occupying co-client. If you have an FHA loan, you may already know that you must pay a mortgage insurance premium (MIP) for as long as you have your FHA loan, if you invest less than 10% in your down payment on the home. Many homeowners hold on to their FHA loans only until they reach 20% equity and then refinance them with a conventional loan.

This allows them to waive the mortgage insurance requirement and save money. Another option is to apply for refinancing with a non-occupying co-client. This is a person who doesn't live in their home, but who is willing to take financial responsibility for their loan in the event of default. This option allows you to refinance an existing FHA loan without the credit check and regular income. In some cases, you can also get a simplified refinance from the FHA without an appraisal. Mortgage loans have some of the lowest interest rates of any type of debt.

For example, the average fixed-rate home loan has an APR of less than 6% at the time of writing, and the average credit card has an APR greater than 16.5%. In general, your score will increase if you keep your utilization rate at or below 30%. To get the biggest increase in your credit score, keep your utilization rate below 10%. Carrying more cash with you, paying fees immediately and budgeting your money are simple ways to reduce your use. In general, a credit score between 670 and 739 is considered good; scores between 580 and 669 are considered fair and any score below 580 is considered bad.

When it comes to the credit score needed to refinance, 620 tends to be the minimum for a conventional loan. FHA refinancing is possible if your credit score is as low as the mid-500. Like the Streamline program, an FHA rate and term refinance is not a cash withdrawal program, the purpose is to help you reduce your monthly housing costs. All income must be used to pay your current mortgage and the costs associated with the transaction. However, this method allows second and third mortgages to be included in the refinanced amount.

If you already have a VA backed home loan, you can refinance it even with bad credit with a hassle-free interest rate reduction refinance (IRRRL) loan, also known as simplified VA refinancing. IRRRLs typically require you to provide financial information, such as two years of W-2 forms and federal income tax returns, as well as recent payment receipts. If eligible, the USDA Streamlined Assist program may be the ideal option for refinancing with bad credit, since a credit review is not required. On the other hand, anyone with a loan through the USDA or backed by the USDA who made mortgage payments for the past 12 months on time can qualify. If refinancing involves a new appraisal of your home, you may learn that the value of your home has increased. If the value has risen to the point where you now have 20 percent equity, you may be able to stop paying mortgage insurance costs. If you already have an FHA mortgage, one option is to apply for a simplified FHA refinance.

This is a great option if you have a low credit score, since a simplified refinance usually doesn't require a full credit check or income verification. Another government-backed refinancing option is going through the Federal Housing Administration (FHA). FHA-backed loans generally have less stringent requirements and allow borrowers to qualify for refinancing with scores as low as 500, depending on the program. A cashback refinance allows you to accept a loan with a higher capital balance than you owe and withdraw the rest in cash. However, if you don't have the time or money to increase your score, here are some more immediate steps you can take to refinance your mortgage. While it's not impossible for borrowers to refinance homes with bad credit, it does require more field work. With today's low mortgage rates, you may want to save some money by refinancing your mortgage. Another situation where refinancing may be a good idea is when you can lower your monthly payments and free up cash to pay other higher-interest debts.

In addition, you could qualify for a bad credit refinance if you add a co-signer to your mortgage application. While a credit that isn't perfect may reduce your mortgage options, it can be solved by refinancing a home loan. With careful research and planning, it's possible for borrowers with bad credit to find lenders willing to work with them on their refinancing needs.

Rosanne Axtell
Rosanne Axtell

An animal lover. Infuriatingly humble pop culture aficionado. Incurable social media advocate. Unapologetic web expert.

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