FICO Score Below 500 and Refinancing

Summary

Borrowers trying to refinance with a FICO score below 500 may still have some loan options.

Here is a list of quick tips for this situation.

Lender Types

There are lenders who specialize in borrowers with a FICO score of below 500.

Most other mortgage lenders will generally not work with borrowers who have a credit score below 500.

It is important to know that the credit score is the “midscore” of three different credit scores most people have on their credit scores. It is the middle score of the three scores on your credit report.

Loan Types

Lenders may offer regular loans such as a 2/28 (2 year fixed) loan or an interest only mortgage.

Lenders may approve loans to borrowers who are self-employed and have FICO scores below 500.

Also, borrowers do not necessarily have to document their incomes. They may be able to state their income rather than documenting it.

Most Important Factor

Mortgage lenders will usually only lend up to 65%-70% of the value of a property.

This amount of equity gives the lender some security in making the loan. There is enough equity in the property for the lender to recover their loan if the borrower stops making payments.

Bankruptcy and foreclosures will not necessarily stop these borrowers as well.

You may also be able to get the loan without a prepayment penalty.

Investment Properties

Lenders may opt to lend on investment properties as well for 500 FICO scores or less.

It usually helps to have substantial equity in the property.

Interest Rates

The mortgage rates on these types of loans generally tend to be higher than for people with bad credit.