Mortgage and Portfolio Loan Guide

cash out refinance with poor credit

Cash Out Refinance with Bad Credit

Tapping into your home’s equity to do a cash out refinance with bad credit may be a great option if you’re looking to consolidate high interest debt or make improvements to your home.

Here you’ll find everything you need to know about how to get approved for such a loan and what to expect when refinancing your home with a cash out or debt consolidation mortgage.

What is a cash out refinance?

When you own a home, typical market conditions provide natural appreciation of your property. This means over time the value of your home increases. As the value increases, you gain more equity in your home.

With a cash out refinance, you can tap into that equity to accomplish your financial or home improvement goals. When you refinance you pay off the existing mortgage loan and get extra cash out to cover other debt you’d like to pay off or make home improvements.

Why would a homeowner do a cash out refinance?

A cash out refinance is done for many reasons. Here are some of the most common scenarios:

  • Consolidate high interest credit card debt
  • Make improvements to the home
  • Pay for children’s college
  • Pay off medical bills or other collections
  • Increase cash reserves for unexpected emergency

Cash out refinancing is available for perfect, good, fair, and bad credit. The main factors that are considered are equity (amount borrowed vs. home value) and income (ability to repay).

A cash out refinance can be done on a primary residence, second home (vacation home), and investment property. The max loan to value ratio will depend on property type, occupancy, and credit score.

Example: if you have perfect credit, and it’s a 2 unit investment property, you may be limited to 70% loan to value. If it’s a primary residence and you have 620 credit score you may be limited to 85% loan to value.

Cash out refinance loans are available for credit as low as 520. Must meet equity and income requirements.

What are the benefits of doing a cash out refinance on your home?

When you consolidate your high interest credit card debt with a cash out refinance there are several incredible things that happen. Paying down your credit cards typically results in higher credit scores.

The credit bureaus (experian, equifax, transunion) score you based on the amount available in comparison to how much you have used. The lower amount you have used compared to the amount of credit available to you will only help your scores in a positive way.debt consolidation mortgage

The interest rates on credit card debt are typically much higher than mortgage rates. AND the interest on credit card debt is NOT tax deductible. The interest you pay on your mortgage IS tax-deductible. Many home owners’ largest tax deduction is their mortgage interest.

By rolling your credit card debt into your mortgage you not only decrease you overall monthly payments, but you also set yourself up for success in terms of tax deductions in many cases.

Take a look at your most recent credit card statement. How much of your payment went toward principal? Not much right?

The tricky thing about credit cards is the minimum payment is manageable, but the minimum payment never gets you anywhere in terms of paying down the principal balance.

By consolidating it into the mortgage, you create a manageable plan to pay off your debt.

Cash out refinance to complete home improvements

Using the equity in your home to improve your home will likely increase the fair market value of your home. Keep in mind, it’s not a dollar for dollar trade-off. Just because you put $20K into new floors and appliances, that doesn’t necessarily increase the value of your home by $20K.refinance mortgage bad credit

Every market is different and some upgrades provide more value increase than others.

The biggest benefit of using your home’s equity to make improvements is it allows you to do the things that you have always intended on doing, but have been unable to save for because life gets in the way.

Improvements like:

  • A new deck/porch
  • Replacing carpet
  • New appliances
  • Roof
  • Improved landscaping
  • and more

What if I have bad credit, can I still do a cash out refinance?

There are several different mortgage options available when looking at getting approved for a cash out refinance. For good credit a conventional loan will probably be the best route to take. For fair to poor credit, an FHA loan will probably be your best route.

If you are a veteran of the US armed forces, and eligible for VA financing, you may be able to do a cash out refinance up to 90% of your home value even if you have credit below 580.

If you do not meet FHA or VA guidelines because you have had a more recent bankruptcy, foreclosure, or short-sale; a portfolio loan will likely be your best option.

Portfolio loans are for scenarios that are more unique and require a “common sense” approval approach. Portfolio loans are less strict than traditional financing, and are intended to be a short-term fix for short-term circumstances. Once you meet traditional lending guidelines you’ll want to refinance out of the portfolio loan.

More on portfolio loans here.

  • Low Credit scores okay
  • Primary residence, vacation home, and investment property
  • Single family home, 2-4 unit, condominium, manufactured homes allowed
  • Recent bankruptcy, foreclosure, short-sale considered

In Summary

There are many benefits to doing a cash out refinance. If you are not sure if you qualify for a cash out refinance whether you have good or bad credit please feel free to reach out.

I’ve been able to help many homeowner’s who have been told by other lenders that they don’t qualify.

I invite you to reach out. 


Get your questions answered.

If I cannot help, I should be able to point you in the right direction at the very least.



self employed home loans

Adam Lesner | NMLS 198818

Michigan, Massachusetts, and Florida. Also offering financing in most states across the US including (but not limited to) Georgia, North Carolina, South Carolina, Alabama, Arizona,

California, Colorado, Delaware, Washington DC, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland, Minnesota, Missouri, Ohio, Oklahoma, Oregon, Tennessee, Virginia, Wisconsin.

Comments (16)

  1. Teresa Kuhlmann

    I have late mortgage payments and credit is 550 due to illness and took out payday loans that are killing me. Plenty of equity but cannot get a loan to pay them! Can I do a cash out refinance?

    • Hello Teresa, thank you for reaching out. There is a fresh start program we may be able to look into doing for you, but it depends on the overall income/credit/asset/property scenario. More than happy to look into this deeper with you.

  2. Linda Lapsins

    Hello. I have fair to poor credit however I own my home outright. I’m looking to consolidate my auto loans and do home inprovements. Can you help me.

    • Hello Linda, yes, I am happy to take a look and see if I can help. If you are at least 500 credit score, I should be able to assist depending income/employment situation. I just sent you an email. I look forward to connecting with you soon. All the best! 🙂

  3. ElaineG

    We filed bankruptcy in January 2016, discharged in April 2016. I’m 3 months behind in my mortgage and am looking to cash-out refinance to become current again and pay off debt. Our credit scores are high 500’s – low 600’s. Our loan is VA now, and I was told that we can’t refi through VA until 3 years after BK. Is getting a cash out refi something that’s possible?

    • Hello, thank you for reaching out. I may be able to help with refinancing into a portfolio loan, but I need to understand the equity and income situation. I just sent you an email as well. Looking forward to connecting with you soon. Thank you!

  4. Bradley Elenes

    I would like to speak with you.

    [email protected]

  5. Jesus J Elenes

    Bankruptcy over two years ago maybe missed payments but all caught up. Credit Sore 550 transunion. Income 90,000.00 yearly.

    • Thank you for reaching out Jesus. Happy to help, even with recent bankruptcy. I just sent you an email with a few questions. I look forward to hearing back from you soon!

  6. Ralf Gonzalez

    Are you able to work with people in Illinois? Great income ($96k), poor credit 560….. all started when we flooded and had over 40k in damages 7 yrs ago….. started a family a month later and we were never able to catch back up. Last year, my company went on strike for 2 months…. made everything worse!! Jan. Was the first time we were late on a mortgage payment in 13 years!!! We’ve been caught up since then. Other lenders cannot refinance us due to high credit card debt. Cash out Refinancing is what will allow me to finally catch up and start over and be back to the days I had an 800 score and paid credit cards off every month!! Do you think you would be able to help?

    • Hello Ralf. Thank you for reaching out. Yes, I can help in IL. I just sent you an email with a few questions to see if we can get this done for you. I look forward to hearing back from you soon. Thank you!

  7. April Williamson

    Hello! I have about $220,000 in equity in my home and I am interested in doing a cash out refi. I owe about $95,000 and make $60,000 a year. The issue is, my credit score is 543. I am trying to cash out as much as possible to buy a new home. Are you able to work with this situation?

  8. Mrs. Stanton

    Hi. My husband and I would like to refinance our VA loan and pull out cash. We have scores in the low 500’s, make about 90k together and have at least 150k in equity. We need to desperately pay off credit cards and taxes. Is this something that sounds doable??

    Thank you.

    • Hello Mrs. Stanton. Yes, we can help as low as 500 credit score depending on equity an income situation. I am sending you an email right now with a few questions. Looking forward to working with you!

What questions do you have?