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Can You Refinance With Late Mortgage Payments?

Written by Allison Martin

Allison Martin is a personal finance enthusiast and a passionate entrepreneur. With over a decade of experience, Allison has made a name for herself as a syndicated financial writer. Her articles are published in leading publications, like, Bankrate, The Wall Street Journal, MSN Money, and Investopedia. When she’s not busy creating content, Allison travels nationwide, sharing her knowledge and expertise in financial literacy and entrepreneurship through interactive workshops and programs. She also works as a Certified Financial Education Instructor (CFEI) dedicated to helping people from all walks of life achieve financial freedom and success.

Updated February 29, 2024​

5 min. read​

You want to refinance to lower your monthly mortgage payments, get a better rate, change the loan term or switch loan types. But is it possible if you have a history of late payments? That’s a valid question if you’re serious about making a move.

The short answer is yes, but your options could be limited. There’s also a chance that the loan programs you potentially qualify for may not offer the best terms.

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How Late Payments Can Impact Your Refinancing Options

When applying for refinancing, lenders assess your creditworthiness and means to repay the loan. Even if you’re good in the income department, bad credit is a red flag that could increase your borrowing costs or result in a denial.

That said, if you meet the lender’s minimum credit guidelines and the late payments are older than 12 months, you could be in luck.

Understanding the Impact of Late Payments on Your Mortgage

The lender will likely assess a late payment penalty if you need to catch up on mortgage payments. But if the delinquent balance remains outstanding, it could negatively impact your credit rating.

Credit Score Implications

Mortgage lenders generally report late payments to the credit bureaus once the account is 30 days past due. A payment history account is a big deal for your credit score – accounting for 35 percent – so late payments can tank your credit rating.

Unfortunately, a lower credit score could mean limited access to new loans or credit card products. It also means qualifying for a refinance could take a little more legwork.

Risk of Foreclosure

There’s also the risk of foreclosure when you make late payments on your mortgage. A single late payment doesn’t mean you’ll automatically lose your home. But four or more consecutive missed payments, which means your account is 120 days or more past due, could trigger your lender to initiate foreclosure proceedings.

Can You Do a Cash-out Refinance with Late Payments?

It depends. Your payment history is one of the primary factors mortgage lenders consider when deciding if you’re a good fit for a cash-out refinance. Recent late payments could signal an elevated risk to the lender, but that doesn’t mean you’re entirely out of options.

Some lenders may be willing to work with you. That said, it’s best to wait until the late payments have aged a bit before applying – preferably 12 months or more. Lenders typically prefer a pattern of timely payments because it indicates you’re less likely to default on your mortgage. Late payments within the last 12 months can be particularly concerning for lenders, as they reflect your current financial management habits.

However, if you have a compelling reason for the late payments, such as a temporary hardship that you’ve resolved, lenders may consider this. It’s also worth noting that some government-backed loan programs, like those insured by the FHA, may have more lenient policies regarding late payments.

Remember, each lender may have different requirements and thresholds for risk. While one lender may require a clean payment history for the past 12 months, another might be more lenient if you can demonstrate that you’ve recovered from past financial difficulties. It’s also possible that you’ll face higher interest rates or fees if you have had recent late payments.

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Consequences of Cash-Out Refinancing with Late Payments

Before you apply for a cash-out refinance with late payments on your credit report, there are potential drawbacks to be aware of.

Increased Interest Rates

As mentioned, your credit score is a vital factor evaluated by lenders when determining the interest rate of your loan. If late payments are on your credit report, your credit score may be lower, often leading to higher interest rates on a new mortgage loan. Higher rates, in turn, result in more expensive borrowing costs over the life of your loan.

Approval Difficulty

Finding suitable cash-out refinance options with a history of late payments becomes more challenging. Seeking a cash-out refinance often becomes more difficult with a history of late payments.

Lenders typically view a pattern of late payments as an indicator of potential stability issues regarding your finances, which can make you appear as a higher-risk borrower. Even with equity in your home, a bad credit history due to late payments might lead lenders to hesitate or require stringent terms for loan approval.

How to Improve Your Chances for a Cash-Out Refinance Despite Late Payments

If you’ve decided to move ahead with a cash-out refinance, there are actions you can take to help increase your approval odds.

Repairing Your Credit Score

The components in your credit report determine your credit score. So, you want to ensure they’re accurate before applying for a cash-out refinance. Start by getting a free copy of your credit report from the three credit bureaus – Experian, TransUnion and Equifax. You can do so weekly at

Review each report, and if you spot any issues, file disputes with the applicable credit bureaus. By filing disputes, you could have errors or outdated information removed that’s dragging your credit score down.

Bringing any past-due accounts current is equally essential to avoid adverse credit reporting. And, of course, you want to continue paying all your bills and monthly debt payments on time.

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Working with a Mortgage Expert

Contact a mortgage broker for assistance. They can shop your information around to lenders in their extensive network to find a good fit. It’s also worth reaching out to your current bank or credit union. Depending on your relationship, they may be willing to work with you on a cash-out refinance.

Navigating through a cash-out refinance with late payments can be a challenging process. However, with the expert guidance and support of Mutual of Omaha Mortgage, you can confidently move forward and make informed decisions about your financial future. By reaching out to their experienced professionals to start the conversation, you can take the first step towards regaining control over your financial situation.

Remember that even with late payments on your mortgage, Mutual of Omaha Mortgage is here to help you explore your options for cash-out refinancing. Trust in their expertise and commitment to providing personalized solutions that meet your needs. Contact Mutual of Omaha Mortgage today and begin the journey toward achieving your financial goals.

Taking Advantage of Mortgage Assistance Programs

Search for mortgage assistance programs that support borrowers looking to refinance. Some programs cater to aiding individuals with a less-than-perfect payment history.

If you qualify for assistance programs, consult your mortgage lender for guidance on incorporating this help into your refinance application. They may also offer tips to help you achieve a more favorable debt-to-income (DTI) ratio and improve your overall financial standing.

Conclusion: Navigating Through a Cash-out Refinance with Late Payments

If you’re considering a cash-out refinance and have had some late payments, shopping around and speaking with multiple lenders is a good idea. They can provide more specific information on their requirements and help you understand your chances of approval. Improving other components of your financial profile, like your credit score or debt-to-income ratio, can help offset the risk posed by late payments.

Finally, remember that a cash-out refinance should be a beneficial financial move. The new mortgage replaces your existing one, and the cash difference should aid in achieving your financial goals despite any hiccups you’ve had in the past. Being realistic about your situation and persistent in your pursuit will put you on the right track for a successful cash-out refinance.

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Frequently Asked Questions

Can you qualify for a cash-out refinance with multiple late payments?

Qualifying for a cash-out refinance with multiple late payments on your record is challenging but not always impossible. Lenders typically prefer a clean payment history to assess lower risk.
However, some lenders might still consider your application if there are compelling reasons for the late payments and you’ve shown a pattern of financial stability since then. Documentation and a reasonable explanation will be essential.

How long do late payments impact your ability to refinance?

Late payments can significantly impact your ability to qualify for a refinance, depending on how old they are. Most lenders require a minimum period of timely monthly mortgage payments, typically 12 to 24 months, to approve you for a new loan. Keep in mind that late payments can sit on your credit report for up to seven years, but the negative effect on your credit rating will diminish with time if you make consistent, on-time payments moving forward.

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