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With today’s low mortgage rates, you might be hoping to save some money by refinancing your mortgage. But like a lot of people who took on more debt during the Covid-19 pandemic, your credit score may have taken a hit recently. This can affect your ability to refinance your mortgage, and the interest rate the lender is willing to offer you.
Although it’s not impossible for borrowers to refinance homes with bad credit, it does take more legwork. In fact, sometimes you can refinance with a score in the 500s. So if you’re hoping to refinance a mortgage with bad credit, learn your options below.
4 Steps to Refinance Home With Bad Credit
There are several different ways to refinance your home loan with bad credit, including working to build up your credit score first. However, if you don’t have time or the money to raise your score, here are some more immediate steps you can take to refinance your mortgage.
1. Work With Your Existing Lender
When looking into a bad credit home refinance, your first step should be talking to your current lender to find out what type of deal you can work out. As an existing customer, you may receive a bit more leeway in terms of credit qualifications, especially if you’ve been a good customer and made all your payments on time. Your lender would probably rather keep your business.
Even if your current lender agrees to a refinance, it’s a good idea to gather quotes from several other financial institutions to be sure you’re getting the best deal possible. If you go this route, however, submit all your applications within a period of 45 days because FICO will recognize it as rate shopping and therefore, won’t ding your score for several hard credit inquiries within that short timeframe.
2. Check VA Refi Program
If you’re a servicemember, veteran or qualifying spouse, you may be able to refinance with a loan backed by the U.S. Department of Veterans Affairs (VA). These loans are provided by private lenders but insured by the VA so that borrowers can more easily qualify and at a lower cost. Though the VA doesn’t institute a minimum credit score requirement, the individual lender might require a score of at least 620.
You have two options for refinancing with a VA loan.
- VA streamline refinance. If you already have a VA mortgage loan, you could refinance through the more streamlined VA Interest Rate Reduction Refinance Loan (IRRRL) …….