Cash-out refinance with bad credit: FHA's 500 floor, 80% cap and 12-month rules

8 min read · LenderMatch Learn

You can get a cash-out refinance with bad credit, and the most common route is FHA. HUD allows FHA loans with a credit score as low as 500, and a cash-out refinance can go up to 80% of your home's value, as long as you have owned and lived in the home for 12 months and made every mortgage payment on time for the past year. Conventional loans usually expect stronger credit, and VA sets no minimum score of its own, leaving that to lenders.

Those are program floors, and each lender can set a higher one, so the same score can get a "no" from one lender and an offer from another. Below are the rules by loan type, a worked example on a $400,000 home, and what late payments, bankruptcy and foreclosure change. When minimums differ this much, comparing several lenders' cash-out offers is often the quickest way to find out where you stand.

Cash-out refinance with bad credit: the rules at a glance

Program rules as published on October 22, 2026. Each program also has waiting periods, covered below, and a lender can ask for more than the program does.

Can I do a cash-out refinance with bad credit?

"Bad credit" has no legal definition in mortgage lending. On FICO's 300 to 850 scale (myFICO), below 580 is "poor" and 580 to 669 is "fair." Mortgage programs set their own floors instead, and lenders add rules on top.

A cash-out refinance replaces your mortgage with a larger one and pays you the difference. Because the new loan usually follows FHA, VA or Fannie Mae and Freddie Mac rules, it can be easier to get with a low score than a HELOC. The HELOC programs we checked for our guide to a HELOC with bad credit did not publish minimums below 600.

FHA cash-out refinance credit score requirements

FHA's rules are in HUD Handbook 4000.1 (update issued August 12, 2026). Here is what it requires for a cash-out refinance:

• A score of at least 500. A borrower is not eligible for FHA financing if the minimum decision credit score is below 500. With three scores, the middle one counts; with several borrowers, the lowest borrower's score counts.
• No more than 80% of the home's value. The maximum loan-to-value and combined loan-to-value are both 80%.
• 12 months in the home. At least one borrower must have owned and lived in the home as their main residence for the 12 months before the FHA case number is assigned. FHA cash-outs are allowed only on owner-occupied primary homes.
• 12 months of on-time payments. Every mortgage payment for the past 12 months (or since you got the loan, if that's shorter) must have been made within the month it was due, and a home with a mortgage needs at least six payments on the current loan.

FHA also charges mortgage insurance: an upfront premium of 1.75% of the loan, which can be added to the loan, plus an annual premium. On a 30-year loan of $726,200 or less at 90% loan-to-value or below, the annual premium is 0.50%, paid monthly, for 11 years.

FHA cash-out refinance with a 580 credit score

Between 500 and 579, HUD limits financing to 90% loan-to-value, which changes nothing for a cash-out already capped at 80%. The difference shows up if your loan is manually underwritten instead of approved by FHA's automated system: below 580, your ratios are capped at 31% of income for the housing payment and 43% for all debts, with no exceptions.

Conventional cash-out refinance with a low credit score

Fannie Mae's Selling Guide (section dated April 22, 2026) says "a minimum credit score is not required" for loans run through its Desktop Underwriter system. The system weighs your whole file, so a low score needs other strengths to offset it. If the loan is manually underwritten, Fannie Mae's Eligibility Matrix (August 5, 2026) sets a 640 minimum for a one-unit primary-home cash-out at 75% loan-to-value or less, and 660 above 75%, with a debt ratio of 36% or less and six months of payments in reserve.

Freddie Mac's cash-out refinance page lists a minimum score of 620 unless its Guide says otherwise. Fannie Mae caps a one-unit primary home cash-out at 80% of the home's value. Below 620, a conventional cash-out depends on a lender willing to go that low, which is why FHA is the more common path.

VA cash-out refinance with bad credit

VA does not set a minimum credit score. VA's Home Loan Guaranty Buyer's Guide says lenders "may want borrowers to have a minimum credit score of 620," and VA.gov says you must meet both VA's and your lender's standards for credit, income and any other requirements. So the floor you face depends on the lender.

A VA cash-out can go up to 100% of the home's value as VA determines it (38 CFR 36.4306); lenders may set lower limits. The funding fee is 2.15% on first use and 3.3% after that (VA.gov, rates effective April 7, 2023), unless you are exempt. If the loan you're refinancing is a VA loan, the new loan can't close until the later of 210 days after your first payment and your sixth payment. Our guide to VA cash-out refinance requirements covers eligibility and the funding fee in detail.

Worked example: a 590 score on a $400,000 home

Say your home is worth $400,000, you owe $220,000 at 4.00% with 25 years left (a $1,161 monthly payment), your score is 590, and you have paid on time for the past year. Here is the most each program would allow before closing costs:

1. FHA: $400,000 × 80% = $320,000, minus the $220,000 payoff = up to $100,000. Adding the 1.75% upfront premium ($5,600) makes a $325,600 loan. At an example 7.40% rate (Freddie Mac's 30-year average, week of October 15, 2026), that is about $2,254 plus $133 of monthly mortgage insurance: roughly $2,388, or $1,227 more than today.
2. Conventional: the same 80% math gives up to $100,000, but at 590 approval would rest on Fannie Mae's automated system, since manual underwriting needs 640.
3. VA, if you are eligible: at 100% of value, the loan can total $400,000 including the funding fee. With a 2.15% fee, that leaves about $171,581 before closing costs, if the lender goes to 100%.

The trade-off is the rate: a cash-out refinance moves your whole balance, not just the cash, to today's rate. Run your own numbers in the cash-out refinance calculator, which shows your cash, new payment and a comparison with keeping your mortgage and adding a HELOC.

Cash-out refinance with bad credit and late payments

Recent late mortgage payments can matter more than the score. Beyond HUD's 12-month on-time rule, FHA's automated approval has to be downgraded to manual underwriting if any mortgage, including a home equity line, shows a current delinquency or any delinquency within 12 months of the case number. If you had a forbearance, HUD requires that you finished it and made at least 12 consecutive on-time payments since.

For a conventional cash-out, the mortgage being paid off must also be at least 12 months old. Our guide on how soon you can do a cash-out refinance has the waiting periods by loan type.

Cash-out refinance after bankruptcy or foreclosure

Bankruptcy and foreclosure come with waiting periods, measured from the discharge or completion date:

• FHA: two years after a Chapter 7 discharge (12 months may be accepted with documented circumstances beyond your control); at least 12 months of on-time Chapter 13 plan payments, with the court's written permission; generally three years after a foreclosure or deed-in-lieu.
• Fannie Mae: four years after a Chapter 7 discharge (two with extenuating circumstances); two years after a Chapter 13 discharge; seven years after a foreclosure. With extenuating circumstances that drops to three years, but until year seven only a purchase of a main home or a limited cash-out refinance is allowed.

How to improve your odds

1. Get 12 clean months. Twelve on-time mortgage payments clear the most common FHA hurdle.
2. Borrow less. Less cash means a lower loan-to-value and a smaller payment.
3. Check your reports for errors. Payment history is 35% of a FICO score and amounts owed are 30% (myFICO), so fixing a real error there may help.
4. Mind co-borrowers. HUD uses the lowest score among borrowers, and a co-borrower who won't live in the home can't add income to an FHA cash-out.
5. Compare in a short window. See whether rate shopping hurts your credit.

If your current rate is low, keeping it and borrowing with a second loan may cost less. Cash-out refinance vs HELOC walks through that math. In Texas, a cash-out refinance on a homestead comes with extra state rules; see Texas cash-out refinance rules.

Frequently asked questions

Can I do a cash-out refinance with a 580 credit score?

Possibly, most often through FHA, whose floor is 500. Lenders may set higher minimums. You also need 12 months of owning and living in the home, 12 months of on-time mortgage payments and a new loan at or under 80% of the home's value.

Can I do a cash-out refinance with a 500 credit score?

HUD allows FHA financing down to a 500 decision credit score, though lenders may set higher minimums. Below 580, a manually underwritten loan is capped at debt ratios of 31% for housing and 43% for all debts.

What credit score do you need for a conventional cash-out refinance?

Fannie Mae sets no minimum for loans approved through Desktop Underwriter, but requires 640 or more when a one-unit cash-out is manually underwritten. Freddie Mac lists a 620 minimum. Lenders can require more.

Is there a minimum credit score for a VA cash-out refinance?

VA does not require a minimum credit score. Lenders set their own, and you must meet both VA's and the lender's credit and income standards.

Can I get a cash-out refinance after bankruptcy?

Yes, after a wait. FHA generally requires two years after a Chapter 7 discharge; Fannie Mae requires four, or two with extenuating circumstances.

Does LenderMatch check my credit?

No. LenderMatch never pulls your credit. A lender you choose may check it, with your permission, when you apply.

See which lenders could work with your score →