If you have been thinking of refinancing your mortgage but doubting if this is feasible because of bad credit, Fret not! Gone are the days that you can’t refinance your mortgage on a low credit score.
Homeowners usually consider getting home refinancing for different reasons. Financial benefits of mortgage refinancing range from lower interest rates on your monthly payment to cashing out on some of your home’s equity.
No wonder having bad credit or low credit rating in home refinancing can be difficult but it is still possible. Home refinancing is usually organized in a number of ways that may work for you better than the others. Fortunately, there are many options to refinance your home depending on your current situation.
Here’s a look at the best ways to get a home refinance with bad credit if you want to lower your monthly mortgage payments and terms.
A good place to start looking for refinancing options for your mortgage is your current lender. Mortgage companies often have options accessible for their current clients. They usually have special rates or refinancing terms options that will help you acquire a lower payment rate. By trying your own lender first will give you an idea and get the best option that they can give that you can use in comparing other lenders offers. They will most likely work with you depending on your payment history. Your current lender will assess not only your credit rating, current income but also your loan-to-value and debt-to-income ratio.
Of course, you are under no obligation to use the same lender company. Also, it’s better to compare various options and offers from different companies before making a decision.
One of the keys to refinancing a mortgage on a low credit score will always be to shop around. As brokers and lenders cater to different markets, there are some who specialized in applicants with low to bad credit profiles.
You will likely get the best rates from multiple lenders by contacting at least 6-10 companies and compare what terms and rates they can offer that work best for you. Different lenders usually have wide arrays of choices and offers that can also work with low to bad credit profiles, just be reminded that exact requirements may vary by lender.
Keep in mind to inform your bank about your intention of shopping around for the best offers, rates, and terms. In some cases, if your bank wants to keep your business it may give you a deal that suits you. They can usually make adjustments to keep your business based on your positive relationship and may offer you a lower rate.
One option you can do is to have someone co-sign the loan with you. This means someone with a higher credit score will also be responsible for the loan. It helps you qualify for a home refinance without having the co-signer to be the owner of the property title. This will give the lender assurance that you can repay the loan in full in agreed terms because someone will also be responsible for it.
This also means that they’ll be responsible for paying the mortgage in case you cannot repay it on your own.
If home refinancing with traditional lenders is not a choice, you may want to check with federal-sponsored mortgage programs that suit you. They particularly aim to aid and help homeowners with poor credit to get approved for a mortgage refinance. Each may have different requirements based on loan types. You can take advantage of the significant savings it can provide if ever you qualify.
FHA’s Streamline Refinance Program
This FHA Streamline Refinance loans, however, are not cash-out refinancing programs since it’s the main goal is to permanently lower your monthly payments.
Home Affordable Refinance Program (HARP)
The Department of Housing and Urban Development (HUD) is an agency that offers free housing counselors who can discuss home refinancing options with you. Speaking with an expert before committing to another loan will always be a good idea.
If for some reason, none of the above options work for you, taking a step back and evaluate your overall financial situation is essential to improve your credit record— even if it takes a bit of time.
The best way to qualify for refinancing a mortgage if you’ve got bad credit — is to try to improve it.
First things first, get a copy of your credit score.
Check for any inaccuracies or discrepancies you can dispute to help your credit. Getting access to your own credit file will also help you understand how it looks from the lender’s perspective and will give you an idea of what lenders look for when considering someone for refinancing a mortgage. Assess and understand why your credit is bad and work on it to be better.
Also, make it a habit to have an annual credit check up and always keep track of your current credit limit, number of credit cards and any late payments if you appeared in your credit report. Pay off your debts, work on your debt-to-income ratio, and saving money can help you get better rates later on.
Improving your credit record may be a long journey but time is on your side. Getting rid of your debts, building your credit score and correcting any errors there may be in your credit reports will still be the best solutions to get a home refinancing you always hoped for.
Home Refinancing can be a smart financial move if done in the right way. It may be difficult, but it’s still possible.
Keeping in mind the strategies and options we’ve discussed may give you the opportunity to reduce your loan terms and interest rates that will help pay off your mortgage in the shortest time possible.