Doing a cash out refinance with 500 credit score can be a challenge, but it’s not impossible. There are many benefits to tapping into your home’s equity, and it’s not just restricted to borrowers with flawless credit. 

Today we cover everything you need to know about getting approved for cash out refinance with 500 credit score. 

Can you get a cash out refinance with 500 credit score?

The short answer is yes. 

But there are a lot of caveats that come along with that, and conditions that need to be met. 

3 Programs to Get a Cash Out Refinance with 500 a Credit Score

1. FHA Loan
2. VA Loan
3. Non-QM Loan or Portfolio Loan 

This is for primary residence only. 

FHA Loan | Cash Out Refinance with 500 Credit Score

This is probably the most popular, and most available way to go when refinancing with with bad credit.

Why is that?

FHA offers competitive rates, and has some of the most flexible underwriting guidelines that you’ll find in terms of credit, debt to income ratio, and loan to value ratio. 

If you’re below 640 score, the rates aren’t quite as good. But what’s nice about FHA, is that you can apply for a streamline refinance down the line, when your credit score improves. 

This gives you the opportunity to accomplish your cash out refinance goals now, and then do a simple streamline once you’re back on your feet (in 6-7 months).  

Things to keep in mind:

• 500 credit score minimum
• Borrow up to 80% of your home value
• No accounts in dispute on credit
• Must not have any 30 day late payments on any mortgage in the last 12 months
• Borrower must have owned and occupied subject property for at least 12 months prior to application

In addition, must be within your county loan limits. Check loan limits here. 

An FHA loan is a fantastic route to take if you have low credit, and are looking to take cash out. 

VA Loan | Cash Out Refinance with 500 Credit Score

To all the US armed forces veterans of this great nation, thank you for your service to our country. Semper Fidelis

Eligible veterans are able to tap into their home equity to up to 90% of their home value. 

For some reason there is a misconception among many veterans that you can only use your VA loan benefit once. 

That is absolutely not true. You can use your VA loan benefit as many times as you’d like, as long as you have available entitlement. Check your entitlement here. 

What’s even more amazing is that, similar to FHA, you can apply for a streamline refinance (VA interest rate reduction loan) once you get back on your feet and get your scores up. 

Things to keep in mind:

• 500 credit score minimum
• Borrow up to 90% of your home value
• Free and clear properties are not permitted
• Must have at made least 6 months payments on current mortgage
• No 30 day late payments in the last 12 months
• Primary residence only

A VA cash out refinance is a wonderful way for our nation’s veterans to accomplish their home ownership goals. 

Non-QM Loan | Cash Out Refinance with Credit Scores in the 500s

Prior to the covid-19 pandemic, these alternative loan types were available as low as 500 score. 

Post/current covid world, these Non-QM loans (or portfolio loans) are an available option as low as 550 credit score. I have no doubt they will lower back down to 500 at some point, and will update when this happens. 

For this type of loan you can expect lower loan to value ratio availability, and rates on the higher side. 

But there are some major benefits to a non-QM loan that you won’t find on FHA or VA, including:

• Multiple 30 day late payments on mortgage in the last 12 months is okay
• Bankruptcy in the last 24 months is okay
• Foreclosure in the last 24 months is okay

A non-QM loan is a short term fix, for short term circumstances. It’s a fantastic way to accomplish your homeownership goals now, and then refinance into something more traditional once your credit improves. 

Why do a cash out refinance?

Debt consolidation – Use the equity in your home to consolidate unsecured debt like high interest credit cards and personal loans

By paying down your revolving debt, your credit score will increase over time if you keep the available balance below 30%

Consolidating your debt into the mortgage often saves borrowers hundred of dollars a month, and has a major positive impact on the household budget. 

Home improvement – If you have been putting off getting things in order around the house because of high expense, a cash out refinance is a perfect opportunity to accomplish your home improvement goals. 

But if the home is in major disrepair, the appraiser will likely mark the repairs needed prior to closing. 

Pay off derogatory debt – Having delinquent debt lingering on your credit for years can weigh heavily on the conscience, and limits your options when seeking financing of any kind. 

A cash out refinance is a great way to get a fresh start and pay off collections, tax liens, and judgments. 

Bonus Tip | Accounts in Dispute

If you have any accounts in dispute, save yourself some time by getting the accounts out of dispute prior to submitting your loan application. 

When you have an account in dispute, the credit bureaus remove that debt from their credit score calculation as if it doesn’t exist.

Since that debt is being ignored, the scores are artificially high and inaccurate. 

Lenders typically want accounts out of dispute, and have credit re-pulled after the dispute is removed in order to get an accurate qualifying score. 

In Summary

Getting approved for a cash out refinance with 500 credit score is possible in many scenarios. 

It’s extremely important to work with a lender that is highly experienced with these types of loans. 

The best options for low credit cash out refinance are:

• FHA Loan
• VA Loan
• Non-QM loan

Find out which option would work for your scenario. 

I invite you to reach out.

Get your questions answered. 

We have been able to help many borrowers all over the country get approved when other lenders said it wasn’t possible. 

Reach out to see if we can accomplish your goals. And if for some reason we can’t, we’ll absolutely do our very best to point you in the right direction to set you up for success.