Can You Refinance with Bad Credit? Options & Guide

Yes, you can refinance with bad credit, though your options will be more limited and the terms less favorable than what borrowers with higher scores receive. According to HMDA (Home Mortgage Disclosure Act) 2023 data, borrowers with credit scores below 620 accounted for a meaningful share of refinance originations, largely through government-backed loan programs like FHA and VA loans.

The key is understanding which refinance options are available to you, what minimum credit score requirements apply, and whether the new loan terms actually improve your financial situation. This guide walks you through every major pathway to refinance your mortgage with bad credit, along with strategies to improve your credit before you apply.

What Credit Score Do You Need to Refinance a Mortgage?

Credit scores range from 300 to 850. Most lenders consider a score below 620 to be a bad credit score for mortgage purposes. However, “bad credit” is relative, and different loan programs draw the line at different thresholds.

Here are the general minimum credit score requirements for common refinance loan types:

• Conventional refinance: Typically requires a minimum credit score of 620 to 680, depending on the lender and loan-to-value ratio.
• FHA refinance: Minimum credit score of 580 for most borrowers. Some lenders may accept scores as low as 500 with a higher down payment or more equity.
• FHA streamline refinance: No minimum credit score requirement set by FHA, though individual lenders often impose their own floors (commonly 580 to 620).
• VA refinance: The Department of Veterans Affairs does not set a minimum credit score, but most lenders require at least 580 to 620.
• VA streamline refinance (IRRRL): Similar to FHA streamline – no VA-mandated minimum, though lenders typically want 580 or higher.
• USDA streamline refinance: No minimum credit score from USDA, but lender overlays commonly require 580 or above.

According to Freddie Mac data, borrowers with lower credit scores consistently receive higher interest rates than those with better credit. A difference of 100 points in your credit score could mean paying 0.5% to 1.5% more in interest, which adds up to tens of thousands of dollars over a 30-year loan term.

7 Ways to Refinance a Mortgage with Bad Credit

1. FHA Streamline Refinance

If you already have an FHA loan, the FHA streamline refinance is one of the best ways to refinance with a low credit score. This program is designed to reduce your monthly payment or move you from an adjustable-rate to a fixed-rate mortgage with minimal paperwork.

The FHA does not require a credit check or income verification for a streamline refinance. However, your lender may still run a credit check and apply their own minimum credit score requirement. You must also demonstrate a “net tangible benefit,” meaning the refinance must lower your combined principal and interest payment or provide another clear financial advantage.

2. VA Streamline Refinance (IRRRL)

For veterans and active-duty service members with an existing VA loan, the VA streamline refinance – formally called the Interest Rate Reduction Refinance Loan, or IRRRL – offers similar benefits. The VA does not mandate a minimum credit score, and the process requires less documentation than a standard refinance.

You must be current on your mortgage payment and have made at least six consecutive on-time payments. This program is specifically designed to lower your interest rate or convert an adjustable-rate loan to a fixed rate.

3. FHA Cash-Out Refinance

If you need to access your home equity and have bad credit, an FHA cash-out refinance may be an option. This refinance loan allows you to borrow more than your current mortgage balance and receive the difference in cash. The minimum credit score requirement is typically 580, and you will need at least 20% equity remaining after the refinance.

Keep in mind that a cash-out refinance increases your total debt. You should carefully consider whether tapping equity is worth the higher monthly payment and the risk of owing more on your home.

4. VA Cash-Out Refinance

Eligible veterans can also pursue a VA cash-out refinance, which allows borrowing up to 100% of the home’s value in some cases. While the VA sets no official minimum credit score, most lenders require 580 to 620. This is one of the more flexible loan options for borrowers with lower credit scores who need access to equity.

5. Non-QM (Non-Qualified Mortgage) Loans

Non-QM lenders specialize in working with borrowers who do not meet the standard “qualified mortgage” guidelines set by the CFPB (Consumer Financial Protection Bureau). These lenders may accept a bad credit score, recent bankruptcies, or non-traditional income documentation.

The trade-off is significant: non-QM refinance loans typically come with higher interest rates, larger fees, and less favorable terms. According to the Consumer Financial Protection Bureau, non-QM loans do not carry the same borrower protections as qualified mortgages, so review the terms carefully before proceeding.

6. Portfolio Lenders and Credit Unions

Some community banks and credit unions keep loans on their own books rather than selling them to investors. These “portfolio lenders” have more flexibility to approve borrowers with a low credit score if other factors – like significant home equity, stable income, or a long relationship with the institution – are strong.

Contact local credit unions and community banks to ask about their refinance options for borrowers with lower credit. You may find more willingness to work with your situation than you would at a large national lender.

7. Loan Modification as an Alternative

If you cannot qualify for any refinance option due to your credit history, a loan modification might help. A loan modification changes the terms of your current loan – rather than replacing it with a new loan – and can lower your interest rate, extend your loan term, or reduce your principal balance.

Loan modifications are typically available to borrowers who are struggling to make their mortgage payment or are at risk of default. Contact your current mortgage servicer directly to ask about modification programs. According to CFPB complaint data from 2024, “struggling to pay mortgage” was among the top issues borrowers raised, accounting for 18% to 34% of complaints across major servicers, which suggests this is a common challenge many homeowners face.

Tips for Improving Your Credit Score Before Refinancing

Even small improvements to your credit score can lead to better refinance terms. If you have time before you need to refinance, consider these steps to improve your credit:

Check Your Credit Report for Errors

According to the Consumer Financial Protection Bureau, you are entitled to a free credit report from each of the three major bureaus (Equifax, Experian, and TransUnion) every week through AnnualCreditReport.com. Review each report carefully for errors such as accounts that are not yours, incorrect late payments, or outdated negative information.

Disputing and correcting errors on your credit report can sometimes boost your score by several points relatively quickly.

Pay Down Revolving Debt

Your credit utilization ratio – the percentage of available credit you are using – is one of the largest factors in your credit score. Paying down credit card balances to below 30% of your credit limit, and ideally below 10%, can meaningfully improve your score.

Make All Payments On Time

Payment history is the single most important factor in your credit score. Even one missed payment can cause a significant drop. Set up automatic payments or calendar reminders to ensure every bill – not just your mortgage payment – is paid on time.

Avoid Opening New Accounts

Each new credit application results in a hard inquiry on your credit report, which can temporarily lower your score. In the months leading up to a refinance, avoid applying for new credit cards, auto loans, or other credit lines.

Keep Old Accounts Open

The length of your credit history matters. Closing old credit card accounts can shorten your average account age and reduce your total available credit, both of which can hurt your score.

Use our refinance calculator to estimate how different interest rates – reflecting different credit score levels – would affect your monthly payment and total savings.

Risks and Considerations: When Refinancing with Bad Credit Does Not Make Sense

Refinancing is not always the right move, especially if your credit score limits you to less favorable terms. Before you proceed, carefully evaluate these risks:

Higher Interest Rates May Erase Savings

The whole point of a mortgage refinance is usually to save money. But if your bad credit score pushes your new rate close to or above your current rate, the refinance may cost you more over time. Use our break-even calculator to determine how long it will take for monthly savings to offset closing costs.

Closing Costs Add Up

According to Freddie Mac, closing costs on a refinance typically range from 2% to 5% of the loan amount. These may include appraisal fees, title insurance, origination fees, and other charges. Borrowers commonly miss these costs when evaluating a refinance. If you are rolling them into the new loan, you are increasing your debt.

Restarting the Amortization Clock

If you are 10 years into a 30-year mortgage and refinance into a new 30-year loan term, you are resetting the clock. Even with a lower rate, you could end up paying more total interest over the life of the loan. Consider shorter loan terms if you can afford the higher payment.

Planning to Move Soon

If you plan to sell your home within three to five years, you may not reach the break-even point on your refinance costs. In this case, refinancing with bad credit – and its associated higher rates and fees – is unlikely to pay off.

Credit Score Impact

Applying for a refinance loan triggers a hard inquiry on your credit report. While multiple mortgage inquiries within a 14- to 45-day window (depending on the scoring model) are typically counted as a single inquiry, spreading applications over several months can result in multiple hits to your score. The Consumer Financial Protection Bureau recommends shopping for rates within a focused time period to minimize this impact.

Prepayment Penalties

Some existing mortgages include prepayment penalties – fees charged if you pay off your current loan early. Check your current mortgage documents before starting the refinance process. If a penalty applies, factor it into your cost analysis.

Rate Lock Risks

When you lock in an interest rate during the refinance process, that lock has an expiration date (often 30 to 60 days). If your closing is delayed and the lock expires, you may face a higher rate. Ask your lender about float-down options, which allow you to take advantage of rate decreases while your loan is being processed.

Should You Refinance Your Mortgage with Bad Credit?

The answer depends on your specific financial situation. Refinancing may make sense if you can lower your interest rate by at least 0.5% to 1%, reduce your monthly payment significantly, or switch from an adjustable-rate to a fixed-rate mortgage for stability.

It may not make sense if the higher rates associated with your low credit score mean minimal savings, if closing costs are high relative to your remaining loan balance, or if you are planning to move within a few years.

Compare offers from multiple lenders. According to CFPB guidance, getting quotes from at least three to five lenders can help you find the best available terms for your situation. You can explore options through our best refinance lenders page to start your comparison.

A Note on Auto Loans and Other Refinancing

While this guide focuses on mortgage refinancing, many of the same principles apply if you want to refinance an auto loan with bad credit. Lenders that specialize in subprime auto lending may offer refinance options, though rates will be higher. Check your credit report, shop multiple lenders, and calculate whether the new loan actually saves you money before proceeding.

FAQ About Refinancing with Bad Credit

Can you refinance a home with bad credit and no down payment?

Refinancing does not typically require a down payment since you already own the home. However, you do need sufficient home equity. For most refinance options, lenders want to see at least 3% to 20% equity depending on the program. FHA and VA programs generally have more flexible equity requirements for borrowers with lower credit scores.

Who will refinance with bad credit?

FHA-approved lenders, VA-approved lenders, some credit unions, community banks, and non-QM lenders may all work with borrowers who have a bad credit score. Government-backed programs (FHA, VA, USDA) generally offer the most accessible paths. Compare options at our best refinance lenders page.

Can you refinance a mortgage with bad credit in California or other specific states?

Federal loan programs like FHA and VA are available nationwide, including California and every other state. State-specific programs may also exist. The refinance process and requirements are generally the same regardless of your state, though property values and local market conditions can affect your equity position and available terms.

How long should you wait to refinance with bad credit?

If your credit score is borderline, waiting six months to a year while actively working to improve your credit can result in significantly better loan terms. For FHA streamline refinance and VA streamline refinance programs, you typically must wait at least 210 days from your original loan closing and have made at least six monthly payments.

Will refinancing hurt my credit score?

A refinance application results in a hard credit check, which can temporarily lower your score by a few points. However, if you shop for rates within a focused 14- to 45-day window, multiple inquiries are generally treated as a single inquiry by scoring models. Over time, consistently making payments on your new loan can help improve your credit.

The Bottom Line: You Have Refinance Options, Even with Bad Credit

Having a low credit score does not automatically disqualify you from refinancing. Government-backed programs like FHA streamline refinance and VA streamline refinance provide real pathways for borrowers with lower credit. Non-QM lenders and portfolio lenders offer additional alternatives, though typically at higher costs.

The most important step is to honestly assess whether a refinance improves your financial position. Run the numbers with our refinance calculator and break-even calculator, compare offers from multiple lenders, and consider whether spending a few months improving your credit score could unlock better terms.

Disclaimer: This article is for educational purposes only and does not constitute financial advice. Wirly is not a lender or mortgage broker. Your specific situation may vary, and you should consult with a qualified financial professional or HUD-approved housing counselor before making refinancing decisions.

Sources

• HMDA (Home Mortgage Disclosure Act) Data – Refinance origination data and borrower credit score distributions
• Freddie Mac Primary Mortgage Market Survey – Mortgage rate trends and closing cost estimates
• Consumer Financial Protection Bureau (CFPB) – Consumer guidance on mortgage refinancing, credit reports, and non-QM loan protections
• CFPB Consumer Complaint Database – 2024 mortgage servicer complaint data and top reported issues
• FRED (Federal Reserve Economic Data) – Historical mortgage rate data and economic indicators

Sources

• HMDA (Home Mortgage Disclosure Act) – Lending volume, approval rates, and loan characteristics
• Freddie Mac Primary Mortgage Market Survey – Weekly benchmark mortgage rate survey dating to 1971
• CFPB (Consumer Financial Protection Bureau) – Official consumer protection guidelines and mortgage resources
• FRED (Federal Reserve Economic Data) – Daily and weekly mortgage rate data sourced from Freddie Mac PMMS

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Written by the Wirly Editorial Team. Last reviewed: March 29, 2026. Fact-checked against HMDA 2023, Freddie Mac 2024, CFPB guidelines, CFPB complaint data 2024. See our methodology for how we evaluate lenders.