Guide to Mortgage Refinancing with Average to Poor Credit in 2019

Refinancing your mortgage has many benefits. You can get a lower rate in your mortgage, and also cut your monthly payments. Or, you can get the cash you want for renovations. Your credit score is a critical factor that lenders consider when they determine if they want to work with you on your refinance. Bad credit could put you at a disadvantage when compared to other potential borrowers.

Interest rates have continued to climb over the last six months. Data from Freddie Mac shoes that 30-year fixed rate loans are near a three-year high. If you lack a great credit score, you could have trouble qualifying for a low interest rate in the first place. Lenders tend to offer their best refinance rates to buyers with the higher credit scores. Most conventional mortgage lenders want a score of at least 620 to be approved, and some may even have a stricter minimum.

But it is still possible to refinance your mortgage with average to poor credit in 2019:

Work with Your Current Lender

The first step you should take is to talk with your original lender. If you have a history of payments on time to your lender and are current on the loan, they could be willing to work with you no matter your credit. A low credit score does not always make or break your loan application. Lenders also will review your loan to value ratio, and your debt to income ratio, current employment and income. At least you will have something to show competing lenders.

Your current lender also may offer you a good rate even with a low credit score. You could incur higher costs and establish a new escrow account that you use to pay property taxes.

Shop for a Good Deal

Credit scores help lenders to decide if they should work with you. It also will affect your interest rate. Compare mortgage rates at different lenders to score you the best deal. Some may be more willing than others to work with a borrower who has a lower FICO score. You will likely find many options.

Work Hard to Boost Your Credit Score

If poor credit means you get a poor rate and terms, or that you are having a hard time finding a lender, think about working to improve your score. Conventional lenders want to see a score of at least 620. Start by getting a hold of your credit reports and arguing with any errors that lower your score.

Once you have gone over any errors and corrected them, look at how you are spending habits. Pay your bills on a timely basis. This is the most important part of your credit score. A history of missed payments will reduce your score. Try to keep your credit utilization low, do not open new accounts if you can, and try to pay down debt that is outstanding. These changes will not affect your score right away, but will make a difference over several months or a year.

Obtain a Cosigner

A cosigner could assist you to qualify for a loan or a higher interest rate than you can get on your own with bad credit. The person will be held responsible financially if you do not make payments on time. This means their credit also could be in danger. This is a major commitment and is not something to be considered without thinking about it.

Consider an FHA Streamline Refinance

This program lets homeowners who have an FHA loan already to refinance with virtually no underwriting or review of your credit score. It means you probably won't have to have a credit check, have your income verified, or have your employment checked. Also expect lower closing costs than what you may have had. To qualify, you need to have an FHA loan be totally current on payments.

Consider an ARM Loan

Staying in your home for only three or five years, you may find an ARM of three or five years helps you secure a lower rate. ARM rates are lower than fixed rate loan rates.

If you try these various options, you may be able to get approved for mortgage refinancing even with poor credit. Lending standards have eased in the past three years, so plenty with so-so credit are getting approved.