Banks are fair-weather friends as their support is only available when your finances look good. The more your credit slips, the harder it is to get them to approve your loan or refinance request. Refinancing a home with bad credit can particularly feel like a punishment because even private mortgage companies refuse to entertain such unfavorable situations.
Luckily, you have ways to get out of that situation.
Our experts have prepared this guide after exploring all available options for borrowers with less-than-optimal credit scores. We are not going to give you condescending finance management tips but actual short- and long-term solutions.
We will also present Hard Money Loan Solutions (HMLS)—a Florida-based private lender offering all types of real estate financing/refinancing to people with credit barriers.
Bad Credit for Home Loan Refinance—Is It a Deal-Breaker and How To Work With That?
Banks, credit unions, and other traditional lenders offer conforming loans that must follow the lending guidelines set by the government-sponsored enterprises Fannie Mae and Freddie Mac. From a federal perspective, the goal is to prevent homeowners from getting themselves into unmanageable mortgages that lead to foreclosure situations. Check out some of the prime aspects of these guidelines:
|Lending Parameter||Federal Guideline|
|Minimum credit score||620|
|Debt-to-income ratio||• Front-end ratio—28% or less|
• Back-end ratio—36% or less
|Borrower contribution||• 20% down payment for purchases|
• 20% equity for refinances
|Loan-to-value (LTV) ratio||Not more than 80%|
|Lending limit||$726,200 to $2,095,200, depending on the number of housing units and cost of living in the area|
A traditional lender has no option but to follow these guidelines to the T. If you want to refinance your loan in any less-than-ideal situation, you can work with two strategies:
- Look for a non-conforming refinance
- Devise a plan to meet the guidelines
Ways To Refinance a Home Loan With Bad Credit
Based on the two strategies we mentioned above, there are roughly four ways to handle your current refinance—you can try to:
- Renegotiate the refinance with your current lender
- Explore Federal Housing Administration (FHA) refinance programs
- Apply with a co-signer who has good credit
- Get a hard money loan refinance
Renegotiate the Refinancing Terms With Your Existing Lender
In most cases, the original mortgage on your home is a conforming one offered by a traditional lender. It’s common for people to look into refinance options during tough times, mainly because the monthly mortgage payments become burdensome. Before looking elsewhere, it’s wise to ask your existing lender if they’re willing to tweak your conforming loan.
Here’s the trick—if your current lender is a small- or medium-sized mortgage company/bank, it’s likely they would be open to renegotiating the terms of your home loan. These lenders strive to retain customers, and the most common solution they offer is a rate-and-term refinance.
Source: Edmond Dantès
With a rate-and-term refinance, you can opt for a longer tenure, which will automatically reduce the magnitude of your monthly payments. The lender can also remove mortgage insurance and other junk elements from the pricing, provided you have built enough equity in your home. Many lenders offer fee discounts and waivers for refinancing with them again, so it may be a viable choice in terms of cost savings.
Another plausible (albeit far-fetched) option is getting approved for a cash-out refinance, which allows encashing a portion of the accumulated equity in your property. You can use the extra cash to settle your debts and improve your credit score.
Going to the same lender is a more or less adequate solution—it depends on your relationship with the bank and how much business you bring to it. You need to keep your options open because the negotiations might not work.
Explore the Non-Conforming FHA Refinance Programs
FHA loans are some of the most popular products in the non-conforming lending market. They are mortgages designed to make homeownership accessible to families with moderate to low income. As a result, you can qualify with low credit scores and high debt-to-income (DTI) ratios. Since these products are guaranteed by the Federal Housing Administration, expect heavy paperwork regarding your employment stability and bureaucratic hygiene.
There are four types of FHA refinances you can go for:
|FHA Program||Minimum Credit Score||Details|
|Rate-and-term refinance||500–580||You can get a new rate and term on your current mortgage, provided you have made timely payments to your old lender for 12 consecutive months|
|Cash-out refinance||500||The program allows you to extract additional cash out of your home equity (up to 80%)|
|Non-credit qualifying streamline refinance||Not applicable||Non-credit qualifying streamline refinance is only available to borrowers with existing FHA loans. Your interest rate will typically be higher than your current mortgage|
|203(k) refinance||580–620||A 203(k) FHA mortgage allows you to combine renovation expenses into the refinance. You can benefit from your home having a better market value after upgrades|
The FHA appraisal process is intensive, and there is no room for financial delinquency, missed payments, or insufficient paperwork. You can also explore the following government-backed refinances if they apply to you:
Find a Cosigner With Good Credit Standing
People with bad credit often apply for a loan along with a cosigner with better credit standing. That way, they can piggyback on the cosigner’s credit score and asset backing to qualify according to the conforming loan guidelines. The lender is secured because in the case the borrower defaults, the cosigner will be liable to repay the loan.
A cosigner is generally a friend or a non-occupying family member. Keep in mind that many lenders do not allow borrowers to boost an application by adding cosigners. For example, instead of taking the average median credit score of the applicants, the lender may choose to reject the application based on the lower credit score. Have a chat with your lender beforehand if you’re considering a cosigned application.
Source: Alexander Suhorucov
Refinance With a Hard Money Loan
If you want a sure-shot way to refinance loans with bad credit, getting a hard money loan is the answer. It’s a non-conforming mortgage product that is readily available to people with bad credit or a checkered financial history, and the best part is that it can also improve your credit score in the long run.
Hard money loans are real estate-friendly asset-based loans issued on the underlying collateral. In simple terms, if a hard money lender lets you refinance $XYZ, the sum is backed by the value of the home. The borrower gets access to cash, and the lender is secured by collateral—it’s a win-win for both parties. The prime characteristics of a hard money loan are:
- Short tenures (1–3 years)
- Balloon mortgage (interest-only monthly payments + principal repayment at maturity)
- Higher-than-prime lending rates (8%–15%)
Since hard money loans are non-conforming, it’s the lender’s discretion to set minimum credit scores or DTI ratios. Most lenders are okay with poor credit refinances as long as the value of the home is reliable.
Hard money loans are especially beneficial if you want to:
- Lower your monthly payments—Hard money loans are not amortized. You only pay the interest during the tenure (without insurance). When the loan matures, you can repay by:
- Getting another refinance
- Selling the home
- Improve your credit—Hard money lenders also offer cash-out refinance programs to help you consolidate debt and take other measures to improve your credit. Refinance the hard money loan when you’re finally eligible for a bank loan
Don’t Be Held Back By Bad Credit—Refinance Home Loans With Hard Money Loan Solutions!
Bad credit times can hit anyone, but being unable to find or retain housing is plain brutal. At Hard Money Loan Solutions (HMLS), the team makes it easier for borrowers to handle their mortgages while working on their credit. The Florida-based lending group offers attractive refinance and cash-out refinance programs for all types of properties, including:
- Single-family homes
- Multi-family homes
- Commercial or mixed-use properties
- Rental structures
- Special-use units
Many hard money lenders refuse to service owner-occupied homes because of the regulatory complications involved, but the HMLS group is ready to take on the challenge. You can apply for an HMLS loan as a homeowner, businessman, or investment property owner (any nationality) and get your refinance funds within 1–2 weeks! Check out the general terms of the group’s loan packages:
|Minimum credit score and DTI ratio||No specific requirement|
|Interest rate type||Fixed|
|Loan-to-value ratio (LTV)||• Up to 70% of the current purchase price or appraised asset value (whichever is lower)|
• For cash-out refinances, the value of your equity will be considered
|Origination fee||2 points or 2%|
|Closing time||3 to 14 days|
|Monthly installment||Interest only|
HMLS loans don’t have a prepayment penalty as long as you repay after six months. The pricing structure is reasonable and free from junk components like processing and handling fees. If you strategize well, you can improve your credit and get a regular refinance with minimal extra cash spent.
Source: RODNAE Productions
How To Refinance a Home Loan With Poor Credit at HMLS
Refinancing any loan with HMLS is a convenient and paperwork-light process. The company has removed unnecessary elements from the screening process to enable fast access to funds for borrowers.
For most refinance deals, HMLS will only look at your existing mortgage and the latest appraised value of the property to determine your eligibility. You don’t have to submit:
- Bank documents
- Asset schedules
- Tax returns
- Past mortgage payment proofs (HMLS is tolerant towards past defaults)
The refinance process at HMLS is time-efficient and unfolds in three simple stages:
- Pre-approval—You fill out an application form online with core details about your funding situation. An HMLS lender reviews the application and calls you to confirm your interest and discuss the loan
- Tailor-made loan design—The lender considers your property’s appraised value and your convenience to design a customized loan package
- Fund disbursal—If the loan package works for you, the group will contact their legal partners to set up an agreement compliant with local and state guidelines. You’ll get the funds immediately after the legal side is sorted
The HMLS team is all about transparency and open communication. You get quick yes/no answers, and once you’re approved for a package, your funding is guaranteed.
HMLS can be accommodating if you miss a payment down the line—all you have to do is let the team know, and they can help you out with alternative strategies for keeping your loan on track.
Source: Google Reviews
HMLS Is a 5-Star Rated Lender With Industry-Best Ethics
HMLS is backed by veteran real estate professionals who are customer-focused and innovative. Their service never misses, no matter how complicated the funding scenario is. HMLS maintains a track record of 5-star reviews on Google, accumulated over many years.
The group also offers free consultancy for all funding scenarios. Whether you’re considering new investments or hard money-based real estate deals, you can reach out to HMLS to discuss what the team can do for you! Other packages available with the group include:
- Asset acquisition
- Fix and flip
- New construction
- Short sale
- Foreclosure prevention
- Bridge funding
- Debt consolidation
- Business funding
- Commercial real estate investing
Featured image source: Mike van Schoonderwalt