Four Ways to Refinance Your Mortgage With Less-Than-Perfect Credit

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Purchasing a home is a main pillar of the American Dream. But for some homeowners, a mortgage can feel like a heavy anchor.

If your mortgage payment is a burden, refinancing the loan might give you some help. A mortgage refinance loan can potentially lower your monthly payments, reduce your interest rates or do both. If you have less-than-perfect credit scores, you’ll have some difficulty qualifying for a refinance, but it’s not impossible.

1. Check for ways to improve your scores

Your credit scores play a direct role in whether or not you qualify for new loans, and they help determine the rates and fees you pay on the loan. So before you apply for a refinance, check to see how you might improve your scores.

You can start by pulling all three of your credit reports from and giving them a review. If you’re not sure how to read the reports, or you want professional advice for making improvements, schedule an appointment with an NFCC-certified credit counselor. Depending on the details of your situation, a counselor might recommend any or all of the following actions:

  • Dispute errors on your credit reports.
  • Have a family member with good credit add you to one of their credit cards as an authorized user.
  • Adjust your budget and pay down credit card debt.
  • Request an increase on your credit card limit (but don’t increase your balance).
  • Work with the Department of Education to Consolidate your federal student loans or get on an income-driven repayment plan.
  • If you’re behind on debt payments, make a plan with your counselor to become current on them.

Even if you’re not able to raise your credit scores into the “good” or “excellent” range, you may be able to gain points and qualify for more and better loans.

2.Talk to your current lender

It might feel like your lender doesn’t care about your mortgage struggles, but it’s in the lender’s best interest to help you stay in your home.

Depending on the lender and the type of loan, you may have special options to refinance. The lender may also consider alternative qualifications outside of your credit scores to qualify you for a refinance, such as your history of on-time payments on your mortgage.

If your loan is backed by a government program, such as the FHA, USDA, VA, Fannie Mae or Freddie Mac, you could have access to special assistance programs. For example, FannieMae’s RefiNow refinance program does not have a credit score requirement. Other options may include:

  • Forbearance: A temporary pause or reduction in your mortgage payment.
  • Loan modification: A reduction in your monthly payment, made possible by extending your repayment timeline.

To find out what’s available, contact your loan servicer, explain your situation and have them walk you through your options.

3. Search for a new lender

Many lenders require credit scores of 620 or higher to approve a refinance loan, but some are more flexible. For example, FHA and VA refinances are available for borrowers with credit scores of 580 or even lower in some cases. To find out what’s available, shop around and compare lenders’ requirements.

Some mortgage lenders may consider other factors, in addition to your credit, to approve you for a refinance. If your borrower profile is strong in one of these other areas, you’ll have a better chance of qualifying:

  • High and stable income
  • History of on-time mortgage payments
  • Sizeable cash savings
  • Low debt
  • Significant equity in your home 

All of these factors reduce the lender’s risk and can make them more willing to approve your refinance. Just be cautious of any lender that guarantees approval regardless of your credit or other conditions, since they may be offering predatory loans with ultra-high fees and/or confusing terms.

4. Apply with a co-signer

Mortgage lenders may be more willing to consider a refinance if you have a cosigner. Having a cosigner helps because it’s a second person who legally commits to taking responsibility for the loan payments. Should you default on your mortgage, the cosigner faces the same penalties as you, including credit damage and loss of property.

Preferably, your co-signer should be someone with good or excellent credit and a strong and steady income history, but someone with less ideal qualifications can still help. 

Other ways to make homeownership affordable

There’s a chance you need time to work on your credit before you can refinance. If refinancing isn’t an option right now, try looking for other ways to reduce your homeownership expenses in the meantime.

For some owners, dismissing Private Mortgage Insurance (PMI) is an option. Lenders usually require you to pay PMI until you’ve gained 20% equity in your home — meaning your home is worth 20% more than the amount you owe on your mortgage. If you’ve hit that mark, contact your loan servicer and ask them to cancel your PMI.

According to research from Nerdwallet, you could also save $1,000 or more per year by shopping around for cheaper homeowner’s insurance. To reduce your expense, contact your insurer to see if you qualify for any discounts and find out if you can save money by bundling multiple insurance products. Be sure to compare your discounted price to other offers on the market, to make sure you’re getting the best deal.

If you’re looking for even more ways to cut expenses and improve your overall financial picture, reach out to a consumer credit counselor ASAP.