How To Refinance Your Mortgage With Bad Credit: 8 Options

When your credit score is less than perfect and you’re staring at a mountain of mortgage debt, the idea of refinancing can seem out of reach. I’ve talked with people who feel locked into high rates, their dreams of lower payments and extra breathing room paused by that haunting number on their credit report. But after years in the mortgage field, I know that tough credit doesn’t have to be a dead end. In fact, there are several flexible paths—even for those with low scores or spotty credit history.

Today, I’ll walk you through the main refinance options—whether you’re a first-time buyer, juggling debt, or trying to keep your investment property. With guidance from projects like Heart Mortgage, I’ve seen that the right expertise and support can open doors you might have thought were closed. Let’s break down these eight routes, their basic requirements, real advantages and downsides, and how you can boost your chances for approval.

Understanding the challenge of refinancing with poor credit

Refinancing your home loan means replacing your current mortgage with a new one—often to get a better interest rate, a different loan term, or to tap into your equity. Sounds simple, but lower credit scores can trigger issues not just with approval, but also with the terms you’re offered. I’ve seen clients get declined by traditional banks, even when their payment history was steady. Lenders see weak credit as risk, which affects their willingness to cut you a break on rates or fees.

Yet, there’s hope. Specialized government-backed loans, portfolio loans, and other creative options can give you a fighting chance—even below a 620 credit score. As financial lives get more complicated, lenders and brokers have evolved too. I’ve helped clients find more understanding partners due to initiatives and expertise at Heart Mortgage, which focus on clarity, flexibility, and a transparent application process.

The main refinance options for borrowers with low credit

The first thing I ask any client struggling with approval is: what kind of mortgage do you have now, and what program might be open to you? Here are the eight key options, from standard government avenues to less-common exceptions.

FHA streamline refinance

For anyone already in an FHA (Federal Housing Administration) loan, this is one of the smoothest paths—especially if your score is below average. You might not even need a credit check, income verification, or a home appraisal. Here’s how it works:

• No minimum credit score, but many lenders stick to 580 or above for their own comfort, even if FHA’s formal rules don’t require one.
• No equity requirement. Even if your home has lost value, you may still qualify.
• Streamlined paperwork and faster closing.
• Must show you’re current on your payments (no more than one late in the last 12 months).
• You can’t cash out equity—this is just for lowering monthly payments or switching rate type.

From my experience, many clients who thought they were “stuck” because of credit have successfully reduced payments or switched to a fixed rate with this program. The main catch? You must already have an FHA loan—in other words, this is not for conventional or VA borrowers. For more tips, see this detailed guide to FHA loans.

VA interest rate reduction refinance loan (IRRRL)

If you served in the military and have a VA loan, there’s a fairly forgiving option just for you. The IRRRL (sometimes called the VA Streamline) offers these features:

• No formal minimum credit score, but lenders often look for 580–620 or higher.
• No appraisal or income check in many cases.
• Limited to existing VA loans—you can’t switch into a VA loan if you didn’t start there.
• Designed only to lower your rate or switch your mortgage term—no cash out allowed.

I once worked with a veteran who had seen their credit drop after a layoff. With good payment history, they managed to cut their monthly payment by several hundred dollars using this refinance. It’s key to note there are still closing costs—so compare these to your long-term interest savings.

USDA streamline-assist refinance

Rural homeowners with a USDA loan can benefit from this streamlined route—again, without a heavy focus on credit score. Here’s what to expect:

• No minimum credit requirement, but lenders sometimes seek at least 640.
• No appraisal or income review needed in most cases.
• Only available for current USDA Direct or Guaranteed loan borrowers.
• You must be current on payments—late payments over the past year may block your application.

If your property and original loan are both USDA eligible, even low credit doesn’t shut out refinancing.

While less common, I’ve seen rural families dramatically improve their financial flexibility with this tool. Just make sure the refinance actually lowers your monthly costs, because even under this program, you pay fees to process the new loan.

Fannie Mae RefiNow and Freddie Mac Refi Possible

For many with conventional loans (the standard kind not backed by FHA, VA, or USDA), options are more limited if your credit is not strong. However, both Fannie Mae’s RefiNow and Freddie Mac’s Refi Possible programs are designed for lower-income borrowers who haven’t been able to take advantage of other refinances. They include:

• Minimum credit score of 620 (but some lenders may want higher).
• Your loan must be owned by Fannie Mae or Freddie Mac (you can check online using your address and SSN).
• Income must meet a threshold (generally no more than 80% of the local median).
• Streamlined documentation and capped fees.
• Your new payment must be at least $50 lower per month.

This was a game-changer for one of my clients who’d been denied for a regular conventional refinance due to a mid-600s score. The rates aren’t always the lowest, but with capped costs and simpler paperwork, the process is less intimidating for borrowers who meet the income and loan requirements. Learn more about refinancing options in guides like the Heart Mortgage refinancing resource.

Cash-out refinance, even with damaged credit

Most cash-out refinances require a higher credit score, but it’s sometimes possible to qualify with subpar credit if you have significant home equity (often 20–25% or more) and strong debt-to-income ratios. There are a few types here:

• FHA cash-out refinance: usually requires at least a 580-600 score, but some lenders set higher bars. Up to 80% of home value can be tapped.
• VA cash-out refinance: 580–620+ is typical, and up to 90% of the home value can be drawn.
• Alternative/portfolio lenders: may consider scores below 600 in exchange for higher rates and more documentation.

Cash-out refinancing can help pay down expensive debts. According to a Consumer Financial Protection Bureau study, over half of borrowers used cash-out proceeds to pay off other debts. The same study notes that credit scores may rise sharply after refinancing and debt repayment, then slowly decline, but typically remain above where they started.

If your credit has suffered due to high-interest credit cards or loans, using your equity wisely could mean a fresh start.

Portfolio and alternative lending options

Not every mortgage is sold to big government agencies. Some lenders keep loans on their own books ("portfolio loans"), which means they’re not shackled by rigid credit requirements. If you’ve got strong income or assets but lower credit, this option might work for you. Here’s what sets them apart:

• No set minimum score—decision is based on whole financial picture.
• Can consider borrowers with recent bankruptcies, foreclosures, or major credit hiccups.
• Expect higher rates and larger down payment/equity requirements (sometimes 25–30%).

Flexibility comes at a price, but it may be the only route for self-employed or nontraditional earners.

Adding a co-signer for approval

This isn’t a different loan, but an important strategy. If your credit alone can’t clear the bar, a close family member or partner with better credit can co-sign. This can nudge your application across the finish line for regular FHA or conventional refinances. In my experience, the most successful co-signing arrangements have included:

• A co-signer with a solid, verifiable income and good credit history.
• Clear agreements upfront about who’s making payments.
• Understanding by all parties that responsibility for the loan falls on both signer and co-signer if problems arise.

A co-signer can help unlock better terms, but places risk on both parties if anything goes wrong.

Mortgage modification as a last resort

Sometimes, if refinancing is totally out of reach due to major credit trouble or other hardship, mortgage modification is an option. This involves negotiating new terms (such as lower monthly payments or a longer loan term) directly with your current lender—not through a new loan. While this won’t help you tap equity or change loan type, it can prevent foreclosure and buy you time to rebuild credit.

Minimum credit score requirements by program

To help you compare, here’s a summary of widely observed minimum score thresholds. Keep in mind, actual acceptance depends on lots of factors beyond credit.

• FHA streamline: 580 (officially none, but lender overlays common)
• VA IRRRL: 580-620 (varies by lender)
• USDA streamline-assist: None, but 620–640 is typical for lender comfort
• Fannie Mae/Freddie Mac: 620 minimum
• Portfolio/alternative: No set minimum; may consider much lower scores
• Cash-out refinance (FHA/VA): 580–620+ for most lenders

Even with a lower score, focusing on payment history, equity, and income can boost your eligibility.

How to boost your approval odds with less-than-perfect credit

Every day, I see applications with low scores, missed payments, or high loans relative to income. Some get ‘yes’ approvals, others don’t. The difference? Preparation and strategy. Here’s what I recommend:

• Start with your credit report. Get a copy from all three bureaus. Dispute any errors quickly.
• Bring any missed payments/current issues up to date before applying, if you can.
• Gather documents: tax returns, pay stubs, bank statements, records of savings and assets.
• Get a current home value estimate—having more equity helps your application.
• Consider paying down credit card balances, which can sometimes boost your score in a matter of weeks.
• If possible, put off new credit applications for a few months, which keeps your profile steady.
• Talk openly with your mortgage advisor or broker about your situation—they can recommend a tailored plan, as I’ve seen many times at Heart Mortgage.

Sometimes even a small uptick in your credit score (for example, from 580 to 620) can open far better loan offers. If you want more ideas, check out guides in the Heart Mortgage credit resources.

Costs, benefits, and risks of refinancing when credit is low

It’s tempting to focus just on the rate you want, but refinancing involves more than just interest. Here’s what I see trip up many borrowers:

• Closing costs: These can total 2–6% of your new loan amount.
• Higher rates and fees: Often, low-credit borrowers pay more than those with pristine credit.
• Private mortgage insurance (PMI): Especially on FHA or conventional loans with less equity, PMI can be expensive and eat up savings.
• Loan term reset: Refinancing restarts your amortization, stretching some payments out over a new 30-year period.
• Equity drain: Cash-out refinancing can lower your homeownership stake—leaving you vulnerable if property values fall.

Don’t just look at today’s payment—think about the next five, ten, and twenty years.

Still, for many, these are manageable tradeoffs to escape high interest debt or a risky adjustable rate. Refinancing can bring relief, provide stability, or help you reach other financial goals.

When does refinancing with poor credit make sense?

In my view, pursuing a refinance is usually wise if:

• The new payment is clearly lower—even after accounting for all fees.
• You want to move from an adjustable to a fixed rate for peace of mind.
• You need to consolidate high-interest debts and have a realistic plan not to let new debts pile up.
• You are facing hardship and want to stave off foreclosure (through options like modifications or FHA streamline).

I always nudge clients to run the numbers—compare costs now to long-term gains. If you’re unsure, resources like the step-by-step refinancing checklist can help clarify your thinking.

Step-by-step guide to applying for a refinance with weak credit

Based on what I’ve seen with first-time buyers, investors, and families facing approval setbacks, the winning formula is preparation plus patience. Here’s how I’d suggest you approach refinancing:

1. Check which government or conventional loan you currently have.
2. Get your most recent credit report from all bureaus (annualcreditreport.com is free).
3. Connect with a seasoned mortgage advisor (like those at Heart Mortgage) to review your options—explain your true financial story, not just the numbers.
4. Gather proof of all income, assets, and debts.
5. Ask about special programs—FHA, VA, USDA, or Fannie/Freddie—to see if you qualify for streamlined options.
6. If denied by traditional lenders, explore portfolio loans, co-signers, or modifications as backups.
7. Review all costs—application fees, closing costs, new insurance, potential prepayment penalties.
8. Don’t rush—read all paperwork, ask questions, and make sure this move sets you up for the future.

If you want more practical tips and up-to-date news about refinancing, the mortgage insights section at Heart Mortgage is a helpful place to keep learning.

Comparing the best options for refinancing with challenged credit

To summarize, each program has trade-offs. Here’s how I see the main options stack up for different situations:

• FHA/VA/USDA streamlines: Easier approval, no equity needed, but limited to borrowers with existing government-backed loans. No cash out.
• Fannie/Freddie special programs: For lower earners with OK (not great) credit and a conventional loan. Payment must drop by at least $50/month.
• Cash-out refinance: Can be tough unless you have equity and a viable score. Use to consolidate debts, but beware of higher rates or insurance costs.
• Portfolio/alternative lenders: Freedom to work with unique cases, but rates are higher and the paperwork more demanding.
• Co-signers: Good for younger buyers or those rebuilding after a setback—as long as all parties understand the risk.
• Modification: A way to avoid foreclosure, but not a regular refinance—offered mostly as a last lifeline.

There is always a next step, even if your credit isn’t where you want it to be.

The take-home message: Refinancing is possible—even with a lower score—if you know which path fits your background, finances, and goals. Expert companies like Heart Mortgage, with their honest, clear support, can be invaluable allies.

Conclusion: Take the next step toward financial clarity

If you’ve felt weighed down by old mortgage terms or have been turned away because of your credit history, I can say: you still have options. From FHA and VA loans to creative solutions like portfolio lending or using a co-signer, the choice isn’t just between ‘yes’ and ‘no.’ The programs and support available through projects like Heart Mortgage make it possible to unlock better terms, save on monthly payments, or finally gain control of your debt, no matter where you are starting from.

I recommend reaching out for a personalized assessment. Honest, experienced professionals can often spot solutions and routes that go unnoticed. With clear steps, strategic advice, and support at every stage, you can find a way forward—toward a more secure home and financial balance. Trust the decades of expertise at Heart Mortgage to guide your next move.

Frequently asked questions

What is mortgage refinancing with bad credit?

Mortgage refinancing with bad credit means replacing your home loan with a new one, even if your credit score is less than ideal. This process usually aims to secure a lower interest rate, change the loan type or term, or access home equity. Options are more limited for those with lower credit, but specialized programs like FHA, VA, or certain Fannie Mae/Freddie Mac refinances can help make it possible.

How can I refinance if my credit is low?

If your credit is low, you still have ways to refinance. Government-backed loans like FHA, VA, or USDA often have more flexible requirements for borrowers with lower scores. You might also consider programs like Fannie Mae’s RefiNow or Freddie Mac’s Refi Possible if you have a conventional loan. Improving your credit, getting a co-signer, or working with a mortgage specialist who understands unique cases—like Heart Mortgage—can further increase your chances.

Is it worth it to refinance with bad credit?

Refinancing with bad credit can be worth it if you secure a lower payment, switch to a safer loan, or pay down high-interest debts. However, you may face higher rates, closing costs, or mortgage insurance premiums. Weigh the total costs against savings, and consider your long-term financial plans before moving forward.

Where to find lenders for poor credit refinance?

Many traditional, government-backed, and portfolio lenders offer refinance programs for people with weak credit. The most promising options are often available through FHA, VA, or USDA-approved lenders. For those unable to qualify traditionally, mortgage brokers or projects like Heart Mortgage, who specialize in working with credit-challenged clients, can offer tailored advice and products.

What are the best options for bad credit refinancing?

The best options depend on your loan type and individual profile. FHA streamline refinance, VA IRRRL, USDA streamline-assist, and specially designed Fannie Mae/Freddie Mac programs are some top routes if you fit their criteria. For others, cash-out refinancing, portfolio loans, or using a co-signer can provide a workable path. Always compare terms carefully, and choose the one aligning with your goals and future stability.