Refinancing Mortgage with Bad Credit: What You Need to Know
- 14 Days To Close
- May 22
- 3 min read
If your credit score isn’t exactly something to brag about, refinancing your mortgage might feel out of reach. But here’s some good news: it’s not. Even with a low score, you’re not stuck. Whether you're trying to lower your monthly payment, get out of an adjustable-rate loan, or shorten your loan term, there are still paths forward. It just takes the right approach.
Can You Refinance a Mortgage with Bad Credit?
Yes, you can. It might not be as simple as filling out a form and calling it a day, but it’s definitely possible. Most traditional lenders want to see a credit score of 620 or higher. But if your score falls below that, you still have options.
Government-backed loans, like FHA refinances, are often available for scores as low as 580. If you’ve got at least 10 percent equity in your home, that number can even dip to 500. There are also non-QM (non-qualified mortgage) lenders who care more about your income and assets than your credit history. You might face higher interest rates or stricter terms, but the door isn’t closed.
What Kinds of Loans Can Help?
Like we mentioned before, FHA loans are a go-to option for refinancing with bad credit. You may qualify with a 580 credit score and 3.5 percent equity. If your score is between 500 and 579, you’ll need at least 10 percent equity.
VA loans offer a streamlined refinance for eligible veterans and service members. If you’ve been making mortgage payments on time, you could qualify even with a lower score.
USDA loans are available in certain rural areas and may not require a credit check at all, depending on the program.
Private lenders and non-QM loans can be more flexible. If you have steady income, low debt, or a co-signer, you might still get approved. Some lenders even focus on helping borrowers with credit challenges.
Private lenders may also be willing to work with you, especially if you bring something else to the table like a strong income, a low debt-to-income ratio, or a co-signer. Some lenders even specialize in helping borrowers with credit challenges, so it’s worth shopping around.
How to Improve Your Odds of Getting Approved
The better your overall financial picture, the more likely a lender is to say yes. A great place to start is by lowering your debt-to-income ratio. That means paying down credit cards, avoiding new debt, and showing consistent income.
If you have equity in your home, that works in your favor too. A smaller loan compared to your home’s value gives lenders more confidence in your ability to repay.
You can also consider refinancing now to stabilize your situation, then refinancing again later once your credit has improved. If your credit took a hit due to something like medical bills or job loss, include a letter explaining your circumstances. Lenders do take personal situations into account more than you might expect.
What Will Your Interest Rate Look Like?
It’s true that bad credit usually means higher interest rates. You might see rates that are one to three percent higher than what someone with excellent credit gets. But even if the rate isn’t ideal, it can still be a win—especially if you’re replacing an even worse loan or escaping a rising adjustable-rate mortgage.
Ready to Talk It Through?
If you're feeling unsure about what to do next, you're not alone. Refinancing with bad credit takes some planning, but it’s completely possible. The right loan could lower your payments, bring more stability, or help you build a stronger financial future.
