While it is generally true that the higher a borrower’s credit score, the more options they have to obtain credit, it isn’t true that you must have perfect credit to qualify for a mortgage refinance. While lenders rely on your credit score to gauge your reliability as a potential borrower, credit is one of several factors during the mortgage application process. Here are a few tips for people looking to refinance with low credit scores — but remember, your best bet is always to make your payments on time and work to improve your credit score.
Highlight Your Strengths
Borrowers can emphasize other strengths that would make them attractive to lenders; for example, job stability and steady income. Lenders want to be sure that you will pay back your loan, so if you’ve faithfully made on-time mortgage payments for the past several years, point that out.
Have Good Savings
Make sure your lender knows about your nest egg, if you have one. This can illustrate financial responsibility and it shows that even in the event of an emergency, you would still be able to make mortgage payments. If you’re expecting a raise or any additional income in the near future, mention it to your lender. The more money you save and expect to receive, the better. And if you have any additional assets, be sure to have them in a verified account.
Use a Co-Signer
If you are concerned about your ability to qualify for refinancing, one option is to get a co-signer. Co-signing is when someone else, like a family member, agrees to pay your debt if you are unable to pay it off. Co-signers generally need to have very good credit, be financially stable, and understand that they are financially responsible for your home loan in the event that you cannot pay.
Research Government-Sponsored Alternatives
There could be government loan refinance programs available to you depending on your individual financial situation and the circumstances around the original financing of your home — and government-sponsored options are easily researched online. If you have a mortgage through the Federal Housing Administration (FHA), you might qualify for refinancing options that could help in times of financial hardship.