Refinance with Bad Credit: Options & Guide (2025)

Refinancing with bad credit is possible, but it requires knowing which loan options are available to you and understanding the trade-offs involved. If your credit scores fall below 670 – what many lenders consider the threshold for “good” credit – you may face higher interest rates, stricter requirements, or fewer lender choices. However, several government-backed programs exist specifically to help homeowners with lower credit scores access a refinance loan.

The short answer to “can I refinance with bad credit?” is yes. Your path will look different from someone with excellent credit, and it may cost more in interest over time. But with the right strategy, you can still reduce your monthly payment, switch from an adjustable-rate mortgage to a fixed rate, or tap into your home equity. This guide walks you through every option and step.

What Does It Mean to Refinance a Mortgage with Poor Credit?

When you refinance your mortgage, you replace your existing loan with a new loan – ideally with better terms. A rate-and-term refinance changes your interest rate, your loan term, or both. A cash-out refinance lets you borrow against your home equity and receive the difference as cash.

Credit scores play a central role in any refinance. Lenders use your score to estimate the risk of lending to you. A lower credit score signals higher risk, which means lenders may charge a higher interest rate to compensate. According to the Consumer Financial Protection Bureau (CFPB), even small differences in interest rates can add up to thousands of dollars over the life of a loan.

What counts as “bad credit”? While definitions vary by lender, most conventional loan programs consider scores below 620 to be subprime. Scores between 620 and 669 are sometimes labeled “fair.” According to CFPB guidance, borrowers should review their credit report before applying for any mortgage product to understand where they stand and identify potential errors.

7 Refinance Options for Homeowners with Bad Credit

1. FHA Rate-and-Term Refinance

An FHA loan is insured by the Federal Housing Administration, which allows lenders to offer more lenient credit requirements. The minimum credit score requirement for an FHA refinance is typically 580 for most lenders, though FHA guidelines technically allow scores as low as 500 with a higher down payment or more equity. FHA loans are a popular refinance option for borrowers with credit scores below 620 who would not qualify for a conventional loan.

2. FHA Streamline Refinance

If you already have an FHA loan, the FHA streamline refinance is one of the best options available. FHA itself does not set a minimum credit score for streamline refinances, though individual lenders typically require scores of 580 or higher. The program requires minimal documentation – often no appraisal and no income verification. The catch is that you must already be current on your mortgage and have made at least six on-time payments on your existing FHA loan.

3. VA Loan Refinance (Interest Rate Reduction Refinance Loan)

Eligible veterans and active-duty service members with an existing VA loan can use the VA Interest Rate Reduction Refinance Loan (IRRRL), sometimes called a VA streamline refinance. Like the FHA streamline, the VA does not set a firm minimum credit score, though most lenders require at least 580 to 620. This program offers reduced paperwork and no appraisal requirement in many cases.

4. USDA Streamline Refinance

If you have an existing USDA loan, the USDA streamline refinance program may be available. This loan option is designed for homeowners in eligible rural areas. USDA does not impose a minimum credit score for its streamline program, but lenders generally look for scores of 580 or above. Like other streamline programs, it typically does not require an appraisal.

5. Conventional Loan with Higher Equity

While conventional loans generally have stricter credit score requirements – usually a minimum of 620 – having significant home equity can help offset a lower credit score. If your loan-to-value ratio is low (meaning you own a larger share of your home), some lenders may be willing to work with you despite a lower score. However, expect to pay higher private mortgage insurance (PMI) premiums with a lower credit score.

6. Cash-Out Refinance with FHA

If you need to access your home equity and have bad credit, an FHA cash-out refinance may be an option. This program typically requires a minimum credit score of 580 and allows you to borrow up to 80% of your home’s value. Keep in mind that cash-out refinances carry more risk because you are increasing your loan balance.

7. Portfolio Lenders and Credit Unions

Some smaller banks and credit unions offer portfolio loans – mortgages they keep on their own books rather than selling to investors. Because they set their own credit requirements, some portfolio lenders may approve borrowers with a low credit score who would not qualify elsewhere. According to CFPB complaint data from 2024, credit unions like Navy Federal and PenFed had relatively low complaint volumes (200 and 55 respectively) with 100% timely response rates, suggesting strong customer service track records.

Credit Score Requirements by Loan Type

• Conventional loan: Minimum credit score typically 620
• FHA loan: Minimum credit score typically 580 (500 with 10%+ equity in some cases)
• VA loan: No VA-mandated minimum, but most lenders require 580 to 620
• USDA loan: No USDA-mandated minimum for streamline, but most lenders require 580+
• FHA streamline refinance: No FHA-mandated minimum, but most lenders require 580+

Use our refinance calculator to estimate how different rates at various credit tiers could affect your monthly payment.

How to Improve Your Credit Before Refinancing

Even a modest improvement in your credit score can make a meaningful difference in the interest rate you receive. Here are concrete steps to improve your credit before applying.

Check Your Credit Report for Errors

According to the CFPB, 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. Errors – such as accounts that do not belong to you, incorrect balances, or late payments that were actually made on time – can drag down your score unfairly. Dispute any inaccuracies directly with the credit bureaus.

Make On-Time Payments Consistently

Payment history is the single most influential factor in your credit score. Even one or two months of consistent, on-time payments can begin to move the needle. Set up automatic payments or calendar reminders to avoid missed due dates.

Reduce Your Credit Utilization

Credit utilization – the percentage of your available credit that you are currently using – is the second most important factor. Try to keep your utilization below 30%, and ideally below 10%, on each credit card. Paying down balances before applying for a refinance can provide a quick boost.

Avoid Opening New Accounts

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

Give It Time

If your credit history includes major negative events like a bankruptcy or foreclosure, time is your ally. An FHA refinance loan may be available as soon as two years after a bankruptcy discharge, while conventional loans typically require a four-year waiting period. Use that time to build a stronger credit history.

Risks and Considerations

Refinancing with bad credit comes with real trade-offs that you should carefully evaluate before proceeding.

Higher Interest Rates Mean Higher Costs

Borrowers with lower credit scores pay more in interest – sometimes significantly more. According to Freddie Mac data, the spread between rates offered to borrowers with excellent credit versus poor credit can be a full percentage point or more. Over a 30-year loan term, that difference can add tens of thousands of dollars in total interest paid.

The Break-Even Problem

Refinancing involves closing costs, typically ranging from 2% to 5% of the loan amount according to the CFPB. If you are only getting a modestly better rate because of your credit score, it may take years to recoup those costs. Use our break-even calculator to determine how long it will take for your monthly savings to exceed what you paid to refinance. If you plan to move before that break-even point, refinancing does not make financial sense.

Resetting Your Amortization Clock

If you are 10 years into a 30-year mortgage and refinance into a new 30-year loan, you are restarting the amortization clock. This means more of your early payments go toward interest rather than principal. Even if your monthly payment drops, you could end up paying more in total interest over the life of the new loan.

Hidden Costs to Watch For

• Appraisal fees: Typically $300 to $600, though streamline programs may waive this.
• Title insurance: Required by most lenders, this can cost $500 to $1,500 or more.
• Prepayment penalties: Some existing loans charge a fee if you pay them off early. Check your current loan documents.
• FHA mortgage insurance premiums: FHA loans require both an upfront and annual mortgage insurance premium, which adds to your costs.

Credit Score Impact of Multiple Applications

Shopping around for the best rate is smart, but each lender application triggers a hard inquiry on your credit report. The good news is that credit scoring models generally treat multiple mortgage inquiries within a 14 to 45 day window as a single inquiry. According to CFPB guidance, you should do your rate shopping within a focused timeframe to minimize the impact.

Rate Lock Risks

When a lender offers you a rate, you typically need to “lock” it for a set period (often 30 to 60 days). If your closing is delayed beyond that window, you may lose the rate and face a higher one. Ask about lock extension policies and float-down options – provisions that let you take advantage of lower rates if they drop during your lock period.

Pros and Cons of Refinancing with Bad Credit

Potential Benefits

• Lower your monthly payment, freeing up cash flow
• Switch from an adjustable-rate mortgage to a fixed rate for predictability
• Shorten your loan term to pay off your home sooner
• Access home equity for essential expenses through a cash-out refinance
• Consolidate FHA mortgage insurance into a potentially lower premium with a streamline refinance

Potential Drawbacks

• Higher interest rates compared to borrowers with good or excellent credit
• More limited choice of lenders and loan options
• Potentially higher closing costs or upfront fees
• Risk of extending your repayment timeline and paying more total interest
• Mandatory mortgage insurance on FHA and some other government-backed loans

What to Look for in a Lender

When searching for a lender willing to work with borrowers who have bad credit, compare multiple options. According to CFPB complaint data from 2024, applying for a mortgage or refinancing is a common source of consumer complaints across the industry. For example, among the top-volume servicers, refinance-related application complaints ranged from 4% to 49% of total complaints depending on the lender.

Use resources like our lender comparison page to research options. Look for lenders who specialize in FHA or VA loans, as they tend to have more experience working with lower credit score borrowers. Get at least three to five quotes, and compare not just rates but also closing costs, lender fees, and estimated timelines.

FAQs About Refinancing with Bad Credit

Is it hard to refinance with bad credit?

It is more challenging than refinancing with good credit, but it is far from impossible. Government-backed programs like FHA, VA, and USDA loans have credit requirements well below conventional loan thresholds. The biggest impact of a lower credit score is typically a higher interest rate rather than an outright denial.

What credit score do you need to refinance a mortgage?

It depends on the loan type. Conventional loans generally require a minimum credit score of 620. FHA loans typically require 580, though some lenders may go as low as 500 with substantial equity. VA and USDA loans have no government-mandated minimum, but most lenders require 580 to 620.

Can I do a cash-out refinance with bad credit?

Yes, FHA offers a cash-out refinance option for borrowers with credit scores as low as 580. You will need at least 20% equity remaining in your home after the cash-out. Be aware that borrowing against your home equity increases your risk if property values decline.

How long should I wait to refinance if my credit is bad?

There is no mandatory waiting period based solely on credit score. However, if your low score is the result of a recent bankruptcy, foreclosure, or short sale, specific waiting periods apply depending on the loan type. In the meantime, focus on steps to improve your credit – making on-time payments, reducing debt, and correcting errors on your credit report.

Will refinancing hurt my credit score?

Refinancing may cause a small, temporary dip in your credit score due to the hard inquiry and the opening of a new loan account. However, if the refinance helps you make more manageable on-time payments going forward, the long-term effect on your credit history is often positive.

Final Thoughts

Refinancing with bad credit is a real option, but it demands careful evaluation. Focus on understanding your current credit score, exploring government-backed loan programs, and calculating whether the math works in your favor. Use our refinance calculator and break-even calculator to run the numbers before committing.

If the numbers do not work today, that is okay. Spend a few months making on-time payments, paying down debt, and correcting errors on your credit report. Even a 20 to 40 point improvement in your credit score could meaningfully reduce the interest rate you are offered and make refinancing worthwhile.

Disclaimer: This article is for educational purposes only and does not constitute financial advice. Wirly is not a lender or mortgage broker. Loan terms, credit score requirements, and availability vary by lender and may change. Consult with a qualified financial professional or housing counselor before making refinancing decisions.

Sources

• Consumer Financial Protection Bureau (CFPB) – Guidance on refinancing decisions, closing costs, and shopping for mortgage rates
• CFPB Consumer Complaint Database – 2024 mortgage complaint data by servicer, including complaint volumes and response rates
• Freddie Mac Primary Mortgage Market Survey – Data on mortgage rate spreads and historical rate trends
• CFPB Credit Reports and Scores Resources – Guidance on checking and correcting credit reports
• U.S. Department of Housing and Urban Development (HUD) – FHA streamline refinance program guidelines and eligibility

Sources

• CFPB (Consumer Financial Protection Bureau) – Official consumer protection guidelines and mortgage resources
• Freddie Mac Primary Mortgage Market Survey – Weekly benchmark mortgage rate survey dating to 1971

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Last reviewed: March 29, 2026
Fact-checked against: CFPB guidelines, CFPB complaint data 2024, Freddie Mac PMMS, HUD/FHA program guidelines
Written by the Wirly editorial team. Our methodology: /methodology