Refinancing With Bad Credit: Realistic Options

If your credit has taken a hit since you bought your home, you might assume refinancing is off the table. That isn't always true. The right program depends on your current loan type, your equity, and what you need the refinance to do.

Options by situation

Credit score ranges to expect

• Conventional refinance: most lenders look for at least 620, with much better pricing above 700. Fannie Mae no longer sets a hard minimum score for loans approved through its automated underwriting, but lenders often keep their own floors.
• FHA refinance: FHA allows scores down to 500 in some cases, but most lenders want 580 to 620.
• FHA cash-out: up to 80% loan-to-value; lenders commonly want 600 to 620+.
• VA IRRRL and cash-out: lender minimums commonly range from 580 to 620.

Will the refinance actually save money?

Lower scores mean higher rates and pricing adjustments. Before you apply, compare the rate you're likely to get with your current rate, and calculate your break-even point. A refinance that saves $40 a month with $5,000 in costs takes more than ten years to pay off.

Quick ways to raise your score before refinancing

1. Pay down credit card balances to below 30% of limits, ideally below 10%.
2. Dispute errors on your credit reports.
3. Bring past-due accounts current and keep them current.
4. Avoid new credit applications.
5. Ask your loan officer about a rapid rescore once you've paid down balances. See our rapid rescore guide.

Watch for red flags

• Offers that promise approval regardless of credit
• Upfront fees before you receive a Loan Estimate (beyond a credit report fee)
• Pressure to skip mortgage payments
• Loans with prepayment penalties or balloon payments

If refinancing isn't possible right now

If you're struggling with payments, contact your servicer about loss mitigation options like loan modifications. Our guide to forbearance vs. loan modification explains the differences. A HUD-approved housing counselor can help for free or at low cost.

A 90-day plan to improve refinance odds

If you're not in a rush, a few months of focused effort can move you into a better pricing tier:

1. Weeks 1–2: pull all three credit reports, list every account with its balance, limit and payment status, and dispute inaccuracies with the bureaus.
2. Weeks 2–6: pay credit card balances down below 30% of each card's limit, starting with the cards closest to maxed out. Pay before the statement closing date so lower balances get reported.
3. Weeks 4–8: bring any past-due accounts current and set up autopay on everything. Ask creditors about goodwill adjustments for isolated late payments, though they're not required to grant them.
4. Weeks 8–12: check your scores again, then request quotes from two or three lenders within a two-week window.

Avoid opening new accounts during this period, and don't close old cards, which can raise your utilization rate.

Equity can matter as much as credit

Lenders price risk based on both credit and loan-to-value. If your home has gained value, a new appraisal might lower your LTV enough to offset part of a lower score. For conventional refinances, crossing below 80% LTV also eliminates PMI, which may make a refinance worthwhile even with average credit.

Avoid adding new debt while you rebuild

As you prepare to refinance, avoid financing new purchases or opening new accounts. Each new account lowers your average account age, adds an inquiry, and may increase your debt-to-income ratio. Focus on paying down existing balances and keeping every payment on time; those two steps have the biggest effect on your score and on a lender's view of your file.