Home Equity

A Complete Guide to Refinancing With Bad Credit & Late Payments

By Tom Burchnell
Refinancing With Bad Credit

Dealing with bad credit or a poor payment history on your mortgage? Read on to discover your refinancing options.

When looking to refinance your house, a high credit score and a history of timely mortgage payments can guarantee the lowest possible interest rate (and therefore the lowest monthly payment on your home loan). 

But not everyone has great credit. And sometimes, refinancing a personal loan is most attractive when you aren’t in great financial health. A cash-out refinance can help you take much-needed capital out of your biggest asset—your house. 

But, you may find yourself wondering, can I still refinance with bad credit and late payments?

It all depends on your income and employment. However, no matter your financial situation, there are ways to access the equity you’ve built in your home. In this guide, we’ll cover your options.

How Bad Credit Affects Your Refinance

In most types of refinance options, the mortgage lender will evaluate your mortgage loan application based on three criteria:

  • Credit history and score 
  • Income and employment history
  • Financial assets

Your mortgage payment history is factored into your credit score.

But if you’ve missed payments, don’t panic—you’re not alone. In fact, millions of Americans are in the same situation. In September 2020, 7.1% of homeowners missed a mortgage payment.

Just keep in mind that if you use home equity with a low credit score requirement can result in a higher interest rate.

  • A borrower with a lower credit score of 620 will pay a rate 1.5% higher than someone with a perfect credit score would on the same property.
  • If you don’t have a minimum credit score of 600, you’ll have a difficult time refinancing a mortgage at all. Some lenders will approve you, but you’ll have to pay a very high rate due to your bad credit score.

If you are looking for a lower interest rate and loan program to refinance with bad credit and late payments, you will need a stable income, employment, and current assets. 

How to Refinance With Bad Credit and Late Payments

Before making a decision about your mortgage refinance, the next step is to shop for refinancing options and offers from potential mortgage refinance loan lenders.

Most mortgage lenders can make relationships with those they lend to. If your application is in a gray zone, it’s often up to the discretion of a loan officer whether or not to approve your refinancing.

Taking the following steps can improve the chances of your bad credit refinance loan application:

  • Find somebody to co-sign – When bad credit is your primary obstacle to refinancing, there’s one easy solution: a cosigner with strong credit. With a secondary signature on a mortgage, a lender will feel more secure.

If you’re unable to make a monthly payment on your loan balance, your co-signer would be legally responsible as per the loan term. It is important to remember that finding a co-signer is a business deal—even amongst family—and should not be undertaken lightly.

  • Improve your finances and credit – This is the most direct path to a better rate. It can take months or even years to put yourself in a better position with the credit bureau depending on your situation, but it’s the reliable way to get a better rate on your mortgage.

Alternatives for Refinancing With Bad Credit or Late Payments

Refinancing can seem like an attainable route, but if you can’t lock in the lower interest rate you’d like, your monthly payment will go up.

While refinancing a conventional loan is one potential way to take out cash and meet financial goals like paying down debt, it may be time to consider other ways to raise money.

Consider the following alternatives to refinancing:

  • Get a Home Equity Line of Credit (HELOC) – A HELOC is a revolving credit line that allows a homeowner to take out money against the credit line up to a preset limit, make payments, and then take money out again.

If you plan to use your HELOC to pay off high-interest credit card debt, it could help you save money on interest. Just keep in mind that a HELOC is a second line of credit taken out against the value of your house. If you fail to make payments, you could find your house in jeopardy. Likewise, you’ll have to pay off your HELOC when selling your home.

  • Sell your home – It’s important to consider whether or not selling is the right option before refinancing, since refinancing typically comes with closing costs that add to your overall debt burden
  • Sale-leaseback – It’s commonly assumed that once you sell your house, you’ll have to move out. But that isn’t always the case. The right buyer, like a sale-leaseback, might agree to a contract that lets you stay in your home for a set period of time (or even indefinitely) as a renter. That way, you get the benefits of moving and the cash from the sale without the hassles of actually having to move out.

You can also consider options like a mortgage loan modification or recast, however, there are pros and cons to those as well. Check out our comparison of a loan modification vs. refinance and our pros and cons list of a recast vs. refinance for more information.

How Sale-Leaseback Programs Give All Homeowners Options

While it’s sometimes possible to refinance a mortgage with bad credit and late payments, you can always consider an alternative option that has the same result with fewer hurdles and less hassle.

You’ve put time and energy into maintaining your home, and you should benefit whether or not you have a low credit score or late payment history. Whether you want to buy a new home in a year or stay put for the foreseeable future, a sale-leaseback solution can help you convert your home equity to cash now. 

Through a sale-leaseback, you sell us your house, getting you the cash you need. You then receive a lease to stay in the house paying monthly rent until you’re ready to either repurchase the house or move out.

Key Takeaways

If you’re dealing with bad credit or a poor payment history on your mortgage, you have options for refinancing. Talk to a financial advisor about whether or not refinancing might be the solution for you or if an alternative may be your best bet.


  1. Chicago Sun Times. More than 6 million U.S. households missed their rent or mortgage payment in September.
  2. www.chicago.suntimes.com/business/2020/10/22/21527445/rent-mortgage-late-delinquent-coronavirus-pandemic
  3. Mortgage Professor. What Is a HELOC? https://www.mtgprofessor.com//a%20-%20second%20mortgages/what_is_a_heloc.htm
Bad Credit
Debt Management
Late Payments
Tom Burchnell
Written by Tom Burchnell
Director of Product Marketing

This article is published for educational and informational purposes only. This article is not offered as advice and should not be relied on as such. This content is based on research and/or other relevant articles and contains trusted sources, but does not express the concerns of EasyKnock. Our goal at EasyKnock is to provide readers with up-to-date and objective resources on real estate and mortgage-related topics. Our content is written by experienced contributors in the finance and real-estate space and all articles undergo an in-depth review process. EasyKnock is not a debt collector, a collection agency, nor a credit counseling service company.