Refinancing with Bad Credit: A Complete Guide to Getting Approved and Saving Money

Atomic Answer

Yes, you can refinance with bad credit, but you’ll face higher rates and stricter terms. Borrowers with FICO scores below 620 typically qualify for rates 2-4% higher than prime borrowers, and 40% of lenders require a co-signer or collateral. However, options like FHA Streamline refinances (requiring only 580 scores) and cash-out refinancing through credit unions can work if you have 15-20% equity. Prepare to pay 1-3% in upfront fees and accept a higher interest rate as the trade-off for approval.

Table of Contents

1. What Credit Score Do You Need to Refinance with Bad Credit?
2. How Much Bad Credit Affects Your Refinance Rates and Costs
3. What Types of Refinancing Are Available for Bad Credit Borrowers?
4. How to Improve Your Chances of Approval with Bad Credit
5. What Are the Best Lenders for Refinancing with Bad Credit?
6. Should You Refinance with Bad Credit or Wait?
7. What Are the Risks of Refinancing with Bad Credit?
8. Key Takeaways
9. Frequently Asked Questions
10. Disclaimer](#disclaimer can I refinance?**
    For FHA loans, you must wait 2 years after Chapter 7 discharge and 1 year after Chapter 13 dismissal. For conventional loans, the wait is 4 years for Chapter 7 and 2 years for Chapter 13.

Question: Does refinancing with bad credit require an appraisal?
FHA Streamline and VA IRRRL typically don’t require an appraisal. Conventional loans usually do, especially for cash-out refinances. If your home value has dropped, you may need to bring cash to closing.

Question: Can I refinance if I’m unemployed?
Generally no, because lenders require documented income. However, if you have a co-borrower with income or you’re using rental income from the property, some non-QM lenders may approve you.

Question: What is the difference between rate-and-term and cash-out refinance for bad credit?
Rate-and-term just changes your rate and term, and is easier to get with bad credit. Cash-out refinance lets you take equity as cash, but requires higher credit (660+) and more equity (20–25%). Cash-out is riskier for lenders.

Question: How much does a refinance cost with bad credit?
Expect total closing costs of 3–6% of the loan amount, compared to 2–4% for good credit. On a $200,000 loan, that’s $6,000–$12,000. This includes origination fees, appraisal, title insurance, and points.

Disclaimer

This article is for educational purposes only and does not constitute financial advice. Refinancing decisions should be based on your individual financial situation, including credit score, equity, income stability, and long-term goals. Interest rates and lender policies change frequently; always verify current terms with at least three licensed lenders. Consult with a certified financial planner or housing counselor before making a refinance decision. Past performance and statistics cited do not guarantee future results. The author, David Park, CFP, is not affiliated with any lender mentioned in this article.