Can You Refinance With Bad Credit?

Before you try to adjust a mortgage, you are often told you need to attempt to refinance.  Can you refinance with bad credit though, or will you simply be told that there’s no help for your predicament?

There are no guarantees with mortgage situations, but generally speaking, you should be able to refinance even with poor credit.

Will it be easy?  Definitely not—but if you are determined and willing to accept that you will have to pay a certain price to refinance which you wouldn’t have to if you had better credit, you should be able to refinance your bad credit mortgage.

Many lenders will turn you down outright if you apply for refinancing with bad credit, but if you search hard enough, you should find lenders willing to consider your.

What’s the catch?  You’ll be paying higher interest rates than many homeowners with better credit.  That’s something which you won’t be able to do too much about.  There are a couple of ratios you can familiarize yourself with which can improve your odds of getting bad credit refinancing.

The first ratio is called Loan to Value (LTV).  This is the amount of money you’re trying to get vs. the actual value of your home.  The lower this ratio is, the easier it will be for you to get a bad credit mortgage refinance.  The other helpful ratio to understand is Debt to Income.  The higher your verifiable income and the lower your known debt, the less of a risk you’ll appear to a potential lender.

Another option if your credit is poor is cash out refinancing.  Cash out refinancing is where you take your equity in the home and liquidate it through a second loan.  This is an easier type of refinancing to get since you do own that equity.  The plus is that you’ll have the cash again and you can use it to refinance your home (by paying off your mortgage), or for other things.

Negatives

The negative is that you will of course no longer own that percentage of your home.  You will therefore be trading one mortgage for another.

Refinancing with bad credit isn’t impossible, so try not to get too discouraged or give up when the first few creditors you talk to turn you away.  You may have to be willing to compromise on a higher interest rate, or willing to consider a cash out option in order to get the money you need.

Also think about using the cash from a cash out refinance to pay off some of your other creditors and start correcting your credit rating.  That may make you eligible for a better refinancing option in the future with a lower interest rate.