Can I Get a Cash-Out Refinance with Bad Credit?
A cash out refinance can be a great way of refinancing your mortgage while freeing up some cash for other purposes. However, it can be difficult qualifying if you have bad credit. You may be able to get cash out refinance with bad credit if your first mortgage is paid off.
How Low Can I Go?
You'll have to shop around a bit to find a lender that will consider you with a low credit score. Fannie Mae and Freddie Mac permit scores as low as the FICO 620 level, but lenders aren't required to adhere to those guidelines. Additionally, lenders may use add-ons - markups on the equity stake, the credit score, or both - in order to protect themselves.
How much of a mortgage you'll be able to get will depend on your income and your other debts. You probably won't be able to get a cash out refinance with bad credit for more than 65 to 75% of your home's value.
In order to qualify for an FHA cash out refinance with bad credit, you can't have had any late payments in the past 12 months. Of course, if you're mortgage is paid off, this is a non-issue. 85% of the value of the home can be borrowed (again, though, most lenders won't permit more than 75% if your credit is bad). A low FICO score does not generate a penalty in fees or interest rates. The FHA permits FICO scores in the 500s, but lender add-ons usually mean 600 or more is needed to qualify. FHA loans require mortgage insurance, and it cannot be cancelled.
If your credit score is under 550, you'll have to do some work to get back up to the minimum acceptable levels before you'll be able to take advantage of a home refinance.
Find a Cosigner
If a lender won't provide you with cash out refinance with bad credit, you could get a co-signer. Having someone whose credit is good cosign for you dramatically increases your chances of getting approved, since your cosigner is equally responsible - if you can't make your payments, then he or she is legally obligated to do so. Of course, the difficulty, from your perspective, is going to be finding a person who is willing to place his or her trust in a person who has bad credit.
Consider the Sub-Prime Loan Market
You might also be able to get cash out refinance with bad credit by dealing with mortgage lenders who specialize in providing loans to people with bad credit. Sub-prime lenders are willing to evaluate your application, and consider the potential of lending to you. You'll have to prove that you have a stable income, and you'll also have to pay a higher interest rate than you would if you were qualified to borrow from a traditional lender. This is because the lender considers you to be a high risk.
When you're considering a sub-prime mortgage, it's important to carefully consider the terms and conditions - you don't want to end up being unable to afford your monthly payments. Keep in mind that if you default on any mortgage, particularly when you're getting a home refinance, your ability to borrow money could be adversely affected for quite some time to come. And, of course, you're also running the very real risk of losing your home.
You can get cash out refinance with bad credit, under certain circumstances. If you can't get approved, you could consider finding a cosigner or borrowing from a sub-prime lender.