The best mortgage refinance program if you have a low credit score depends on your current loan program, if you want to take money out when you refinance and other considerations. We review your refinance options below so you can determine the program that is right for you.
If you have a conventional mortgage, are current on your loan and do not need to take out cash when you refinance, then the Enhanced Relief Refinance or High LTV Refinance Option programs are likely your best option. Both programs enable you to refinance your mortgage without requiring a credit score in most cases.
These programs also usually do not require an appraisal report or apply a maximum loan-to-value (LTV) ratio so they are especially helpful if you have limited equity in your property. It is important to highlight that both programs apply a minimum LTV ratio of at least 97.0%; however, so if you have too much equity in your home you may not be eligible for the program.
Review our Enhanced Relief Refinance Guide
Review our High LTV Refinance Option Guide
To be eligible for the Enhanced Relief Refinance Program, your mortgage must be owned or secured by Freddie Mac. To be eligible for the High LTV Refinance Option your loan must be owned or secured by Fannie Mae. This does not mean that you make your monthly payment to Freddie Mac or Fannie Mae and you can contact your current lender to determine who owns your mortgage.
The Enhanced Relief Refinance and High LTV Refinance Option programs are provided by traditional lenders such as banks, mortgage brokers and credit unions. We recommend that you contact multiple lenders in the table below to understand if you are eligible for these programs.
If you have an FHA, VA or USDA mortgage, you are current on your loan and you do not need to receive proceeds when you refinance then you should consider a streamline refinance program.
The FHA, VA and USDA streamline refinance programs do not usually require that you verify your credit score or income to qualify for a refinance. These programs also do not use a maximum (or minimum) LTV ratio.
To be eligible for a streamline refinance your current mortgage program must be the same as the refinance program. For example, if your current loan is an FHA mortgage you may be able to qualify for an FHA streamline refinance.
Review our FHA Streamline Refinance Guide
If you have a VA home loan, you may be eligible for a VA streamline refinance, which is also known as the VA interest rate reduction refinance loan (IRRRL) program.
Review our VA Streamline Refinance (IRRRL) Guide
The same requirement applies for a USDA home loan, which is known as a USDA streamlined assist refinance.
Review our USDA Home Loan Streamline Refinance Guide
Please note that each streamline refinance programs outlined above has unique qualification requirements. The most important guideline is that you are not delinquent on your mortgage with zero to no late payments over the past year, depending on the program.
Additionally, you are typically required to pay mortgage insurance with the FHA, VA and USDA streamline refinance programs, although the fees may be reduced depending on how soon you are refinancing after your current mortgage closed. The FHA and USDA programs require you to pay upfront and monthly mortgage insurance fees while the VA program charges a discounted one-time VA funding fee.
Streamline refinance programs are provided by approved lenders. Even if your original lender offers these programs we recommend that you compare multiple lenders to find the lowest combination of interest rate and fees as you are not obligated to work with your current lender.
Use ourMORTGAGE REFINANCE CALCULATORto determine how much you can save by refinancing
We should highlight that if your current loan is a conventional mortgage, you are not eligible for a streamline refinance program but you may be able to refinance with a standard FHA, VA or USDA mortgage.
For example, the FHA mortgage program is an especially good fit if you have a low credit score and want to refinance. The minimum credit score required to qualify for an FHA refinance is only 500 if you have at least 10% equity in your home and 580 if you have between 2.25% and 10% in homeowners equity.
While you cannot receive any loan proceeds with a standard FHA mortgage, you can with an FHA Cash Out Refinance, up to a maximum LTV ratio of 80%. The qualification requirements for the FHA Cash Out Refinance program are also different than for a standard refinance.
As noted above, the FHA program requires that you pay a one-time and ongoing FHA mortgage insurance premium (MIP) but FHA mortgage rates are usually lower than conventional loan rates which helps to offset these extra costs. Additionally, with an FHA refinance lenders should not charge you a higher mortgage rate because you have a lower credit score.
One final option to consider if you cannot qualify for an FHA refinance is a conventional low down payment program. Although some of these programs require you to be a first time home buyer, many programs also permit refinances.
For example, the HomeReady mortgage program allows refinances and requires a credit score of only 620. Applicants with non-traditional credit histories are also eligible for the program.
Review our HomeReady Guide
To refinance your mortgage with HomeReady you must be current on your loan with no missed payments over the past year. Additionally, the program applies a maximum LTV ratio of 97% for a fixed rate mortgage on a single unit property such as a home, condominium or co-op.
Like all of the programs we outlined above, the HomeReady program is offered by participating lenders. You can use the FREEandCLEAR Lender Director to search over 3,900 lenders by mortgage program and location. For example, you can find top-rated lenders in your state that offer HomeReady mortgages.
"Enhanced Relief Refinance Mortgage." Origination & Underwriting. Freddie Mac, 2020. Web.
"High LTV Refinance Option." Mortgage Products. Fannie Mae, 2020. Web.
"II.A.1.b.ii.(A).(3) Borrower Minimum Decision Credit Score." FHA Single Family Housing Policy Handbook 4000.1. Federal Housing Administration, January 2 2020. Web.« Return to Q&A Home About the author