Mortgage | Low Credit Score

Can you refinance your mortgage with bad credit? Short answer: Yes.

Several legitimate refinancing options, including programs like the Home Affordable Refinance Program and the Federal Housing Authority’s streamlined refi, don’t require credit checks or credit scores.

In addition, others types of refinancing loans (like Veterans Affairs refinancing or a second FHA offering), give lenders wide latitude to work with homeowners who have damaged credit, though the exact requirements will vary by lender.

About 14.5 percent of homeowners who refinanced in December 2017 had FICO scores below 650, according to mortgage software company Ellie Mae. And just under 5 percent had credit scores below 600. So while refinancing with bad credit isn’t the norm, it is possible.

If you have blemished credit and want to refinance your mortgage, here are seven options to investigate.

1. Try your own lender first

A good place to start your search for a mortgage refi is your current mortgage lender, says Bruce McClary, spokesman for the National Foundation for Consumer Credit. Ask if you can get a refinancing loan or a streamlined refinancing loan.

If nothing else, this can serve as a benchmark to compare with other lenders or other refi options.

And let your own bank know you’re going to be searching for refinancing options. In many cases, the bank may be motivated to give you a deal if it wants to keep your business.

If you’re current on your mortgage, bad credit might not be an issue. If you haven’t been paying your mortgage on time, the bank might be more inclined to turn you down.

2. See if you qualify for HARP

The Home Affordable Refinance Program, or HARP, is the Department of Housing and Urban Development’s refinancing program for troubled homeowners. It was introduced in 2009 for homeowners with little (or even negative) equity.

HARP doesn’t require a credit score, and lenders will not pull the borrower’s credit report, says Megan Moore, special adviser to the director of the Federal Housing Finance Authority.

The program does have the following requirements:

The original loan must be owned by Fannie Mae or Freddie Mac.
You must have made no late mortgage payments in the past six months, and no more than one in the past year.
Your loan was originated on or before May 31, 2009.
Your loan-to-value ratio must be greater than 80 percent.
The home must serve as your primary residence, second home or an investment home with one to four units.
The program was scheduled to end on Sept. 30 but has been extended through Dec. 31, 2018. You can find a list of HUD-approved lenders at HUD.gov.

3. Try FHA’s streamlined refinancing

If you already have an FHA mortgage, FHA has a refi deal for you — a streamlined refinance with no credit or equity requirements.

This program is just for homeowners who want a lower rate, shorter term or lower payment. There’s no cash-out option allowed, says Kevin Stevens, director of the FHA’s home mortgage insurance division.

And there’s a “net-benefit test,” Stevens says. Homeowners must be able to cut the repayment term or be able to slice the interest rate by at least a half-percent.

There’s no home appraisal, equity requirement or income/employment requirement. And bankruptcies aren’t an issue.

But you do have to be current on those mortgage payments. You can have only one late payment in the past year, and that one payment can’t have been late by more than 30 days.

Best of all, since there’s no credit check, you get whatever FHA’s current market rate is.

FHA will offer a significantly lower interest rate than many other loan options, says Carolyn Warren, author of “Mortgage Ripoffs and Money Savers.”

On the downside, you can’t get extra cash through this refi or remove any of the current borrowers from the loan.