If you own a home and have debts or other credit problems, you may be tempted to refinance your mortgage. Refinancing typically helps homeowners restructure their mortgage to take advantage of a lower interest rate and lower their monthly payment, or cash out some of their equity to pay down high-interest debts.

But a poor credit score generally makes it more difficult to get a loan of any kind. And if you’re able to secure a loan, you’ll likely have to pay a higher interest rate.

Can You Refinance With Poor Credit?

Refinancing means replacing your current mortgage with a new one, typically with better terms such as a lower interest rate, a shorter or longer loan term, or a lower monthly payment.

Getting that new mortgage requires you to apply for a loan and prove your creditworthiness to the lender. If your credit score has taken a hit, it can be difficult to find a lender willing to help you refinance. However, a poor credit score isn’t immediately disqualifying. There are options, especially if you can qualify for one or more of the available government loan programs.

Just keep in mind that having poor credit typically means your loan will be attached to a higher interest rate, which might make refinancing expensive.

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What Credit Score Do You Need To Refinance?

Every lender can set its own requirements for getting a mortgage refinance. You might find that one lender has strict requirements, while another is more flexible in what it requires of homeowners looking to refinance.

A good rule of thumb is that you’ll want a credit score of at least 620 — though it’s not a universal requirement. Some government programs require no minimum credit score, while others set low minimums for borrowers. For example, the Federal Housing Administration will back loans to qualified borrowers with a minimum credit score of 500.

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How To Refinance With a Low Credit Score

If you want to refinance your mortgage but have a poor credit score, here are seven ways to do it.

1. Apply with a co-signer

If you have poor credit or no credit, one of the most helpful ways to get a loan is to apply with a co-signer. A co-signer is someone who agrees to take over the loan if you fail to repay it.

If you apply with a co-signer, the lender will consider both your credit and the co-signer’s credit when making a lending decision. If your co-signer has strong credit, that makes it easier to get a loan.

However, your co-signer needs to trust that you can handle the loan. If you miss payments, your co-signer is obligated to repay the lender, which can put a serious strain on any relationship.

2. Check out an FHA streamline refinance

You can use the FHA streamline refinance program if you have an FHA mortgage. As the name implies, this program simplifies the refinancing process by removing some paperwork and appraisal requirements.

If you want, you can skip the credit check as part of the streamline refinance. This typically means paying a higher interest rate. However, if you have poor credit, skipping the credit check removes the risk of getting denied for the loan due to bad credit.

3. Consider an FHA rate-and-term refinance

An FHA rate-and-term refinance lets you take an existing loan and refinance it to adjust the interest rate and loan term. This type of refinancing doesn’t allow you to take any cash out of your home. The main eligibility requirements are that you must be current on the loan, and the home must be your primary residence.

4. Apply for a VA IRRRL

If your existing mortgage is backed by the Department of Veterans Affairs, you can apply for an interest rate reduction refinance loan.

To qualify, you must meet all of these requirements:

  • Have a VA mortgage.
  • Use the IRRRL to refinance the VA-backed mortgage.
  • Certify that you live in or used to live in the home.

IRRRLs have no income limits or credit check requirements, making them ideal for people with poor credit.

5. Apply for a USDA streamlined assist refinance

If you have a U.S. Department of Agriculture mortgage, you might be eligible for a USDA streamlined assist refinance loan.

The USDA lets you refinance your loan without an appraisal or a credit check, as long as you’ve been current on your payments for the previous year.

Under this program, your new loan’s interest rate cannot exceed the rate of the loan being refinanced, and you can select a term of up to 30 years. That means you can use the loan to extend your mortgage’s term and reduce your monthly payment without increasing the interest rate.

6. Set custom terms with a portfolio loan

A portfolio loan is a custom-built mortgage that you can design with the help of a lender. These loans are typically more flexible than other types of mortgages because the lender works with you to figure out all the terms and requirements.

You can get one of these loans with bad credit by offering other assurances to the lender. For example, you might pledge assets such as investments or a second property as collateral. Doing so can convince lenders to approve your refinance despite a poor credit score.

7. Use a cash-out refinance to consolidate debts

Your overall debt, as well as the amount you owe in comparison to your credit limits, plays a big role in determining your credit score. If you have high credit card balances and other loans on top of a mortgage, it could cause your credit score to drop.

You could use a cash-out refinance to take some of your home equity and pay off such debts. In short, you borrow more than what you currently owe on your mortgage, pay off the old mortgage, and pocket the difference.

If you work with a mortgage refinance lender to consolidate your other debts, it may convince the lender to offer you better terms.

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Is Refinancing With a Poor Credit Score Right for You?

There are many reasons why you might consider refinancing a mortgage. A few common goals of refinancing include:

However, refinancing your mortgage isn’t free. You must pay closing costs when you refinance, so it’s critical to keep the new loan long enough for your savings to recoup those fees. If you’re planning to sell your home in the near future, refinancing will likely cost you more than the amount you’ll save.

You also have to consider whether you can refinance with favorable terms. It’s more difficult to refinance a loan with poor credit than with good credit, and lenders that offer you a loan are likely to charge higher fees and interest rates, which may prevent you from saving money by refinancing.

“One of the mistakes people can make is refinancing and obtaining an APR higher than their current one,” says Omer Reiner, a licensed real estate agent and broker and president of Florida Cash Home Buyers in Fort Lauderdale, Florida. According to Reiner, it’s still difficult to get a lower annual percentage rate even with market interest rates at historical lows.

Also, keep in mind that refinancing can hurt your credit by adding inquiries and a new loan to your credit report. This can extend how long it may take to fix your credit score after you refinance.

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The Bottom Line on Refinancing With a Poor Credit Score

Whether you’re looking to change your loan term, lower your monthly payment, or reduce your interest rate, there are refinancing options for people with poor credit. It may be more difficult to find a willing lender, but if you know what to look for, you should be able to find an option that can meet your needs.