Can I get a cash-out refinance with bad credit?
Next steps on refinancing with bad credit
Loan type | Minimum score |
---|---|
FHA refinance | 580 |
VA refinance | No credit minimum from VA, but generally 620 |
USDA refinance | No credit minimum from USDA, but generally 640 |
Cash-out refinance | 640 |
Unlike other refinancing options, cash-out refinancing is open to people with fair and poor credit. While home equity lines of credit (HELOCs) and home equity loans require applicants to have minimum FICO® Scores☉ between 660 and 700, a cash-out refinance lender may be satisfied with less.
The U.S. Department of Housing and Urban Development has the same credit score minimums across all loan products, so an FHA cash-out refinance will require a 500 to 580, too. Though again, this can vary by lender.
Yes, you can. A lower credit score doesn't necessarily mean a lender will deny you a home equity loan. Some home equity lenders allow for FICO scores in the “fair” range (the lower 600s) as long as you meet other requirements around debt, equity and income.
Determining whether you qualify: Many cash-out refinance lenders require a credit score of at least 620 and at least 20 percent equity in your home. You might find lenders with looser requirements, but you could pay a higher rate as a result.
Minimum 640 credit score
Conventional cash-out refinance guidelines require a 640 score. Meanwhile, the VA doesn't set a minimum score, but many lenders also set their own at 620. FHA loans are the exception, and borrowers may qualify with scores as low as 500. Learn more about FHA cash-out refinances.
FHA Cash-Out | Conventional Cash-Out | |
---|---|---|
Minimum Credit Score | 500 (official), 600–660 (likely) | 620 (official), 640–680 (likely) |
Maximum LTV | 80% | 80% |
Can Replace Any Loan Type | Yes | Yes |
Occupancy | Owner-occupied only | Owner, 2nd home, rental |
You'll need a minimum credit score of at least 620 if you want to take a cash-out refinance, in most scenarios.
- More than 20% equity in your home.
- A new appraisal to verify your home's value.
- A credit score of at least 620.
- Debt-to-income ratio (including the new loan) of 43% or less.
- Loan-to-value ratio of 80% or less.
- Verification of your income and employment.
How can I raise my credit score 100 points in 30 days?
For most people, increasing a credit score by 100 points in a month isn't going to happen. But if you pay your bills on time, eliminate your consumer debt, don't run large balances on your cards and maintain a mix of both consumer and secured borrowing, an increase in your credit could happen within months.
Home equity loans are a way for property owners to turn the unencumbered value of their homes' equity into cash. And if you have bad credit, a home equity loan is more likely to be approved by a lender—and at a lower interest rate—than either a traditional loan or a revolving line of credit.
Most mortgages, including conventional loans, require a credit score of 620 or higher. It's possible to get an FHA loan with a credit score as low as 500, but many lenders require higher scores. Borrowers with higher credit scores get better rates and terms than those with low scores.
You may be disqualified from opening a HELOC if you do not meet the lender requirements. This may include low equity in your home, inadequate income or a low credit score.
Lender | Loan Amounts | APRs |
---|---|---|
Oportun | $300 - $18,500 | 10.07% - 35.95% |
OneMain Financial | $1,500 - $20,000 | 18% - 35.99% |
RISE | $500 - $5,000 | 60% - 299% |
Jora Credit | $500 - $4,000 | 99% - 349% |
Credit score requirements for HELOCs
The credit reporting agency Experian says borrowers typically need a credit score of 680 to qualify for a home equity line of credit. At Freedom Mortgage, we can often help you qualify for a cash out refinance with a lower credit score than may be required for a HELOC.
If your debt-to-income ratio is above your lender's maximum allowed percentage, you may not qualify to refinance your home. A low credit score is also a common hindrance.
Compared to HELOCs, cash-out refinances are less risky for lenders, meaning they are often able to provide lower interest rates – though you may need to anticipate higher upfront fees in the form of closing costs.
You don't need a down payment to refinance, but you'll likely have to come up with cash for closing costs. Some lenders let you roll closing costs into the mortgage to avoid upfront expenses. You can also try negotiating with the lender to waive them.
Expect a cash-out refinance to take 45 to 60 days, but with a little help, you may speed up the processing time. The faster you provide documentation and secure the appraisal, the faster your lender can underwrite and process your loan. It's a team effort to get the cash in hand that you want from your home equity.
How long does it take to complete a cash out refi?
If you ask a loan officer, they'll most likely say anywhere from 30 to 45 days. While this is generally true, there are plenty of instances where it can take much longer. Read below to understand the factors that affect approval times for a cash-out refinance.
In many cases, there's no waiting period to refinance. Your current lender might ask you to wait six months between loans, but you're free to simply refinance with a different lender instead. However, you must wait six months after your most recent closing (usually 180 days) to refinance if you're taking cash out.
Credit Scores
According to FHA guidelines, applicants must have a minimum credit score of 580 to qualify for an FHA cash-out refinance. Most FHA insured lenders, however, set their own limits higher to include a minimum score of 600 - 620, since cash-out refinancing is more carefully approved than even a home purchase.
Loan-To-Value (LTV)
Currently, to qualify for an FHA cash-out refinance, you can borrow against up to 80% of your home's LTV if you've owned it for over a year and you're borrowing $417,000 or less. In the example above, you'd be able to take out an FHA cash-out mortgage in the amount of $160,000.
Applicants who have a minimum credit score of less than 500 are not eligible for FHA mortgages. Those with credit scores of 500 or better are eligible for 100% FHA loan financing with no down payment required when using the FHA 203(h), Mortgage Insurance for Disaster Victims.
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