Bad Credit Refinance
If you have bad credit and are looking to refinance your home mortgage you might be left wondering what your options are. With the economic conditions of the past few years, there are fewer options available for those with bad credit because banks have become much more risk averse. But, there’s no need to lose all hope. There are ways to get a bad credit refinance loan you just have to make sure you take the right steps.
Refinancing with bad credit can be a lot more expensive than it used to be. The worse your credit history is and the more blemishes you have on it, the higher your rates are going to be. So the first question you should ask yourself is why you are looking to refinance and go from there. Do you want to get a better rate to lower payments? Do you have an ARM loan that is resetting? Your answers will help determine the path you should take towards refinancing.
Should You Even Be Looking for a Bad Credit Refinance?
If your credit profile has deteriorated since you purchased your home, you may not be able to get a lower mortgage rate than you already have. If you have missed mortgage payments in the past or your credit score has fallen below the acceptable level, you may not be able to refinance at all.
On the other hand if your credit history is taking hits due to credit card debt or other non-mortgage related debt, you may have a better chance to refinance and consolidate those balances and begin repairing your credit score.
Those with adjustable interest only mortgages (such as an option only ARM), you may want to do whatever it takes to get your mortgage refinanced because if it resets, your payments could be much larger.
Multiple Lenders Means Multiple Chances at Refinancing
Shopping around for a bad credit refinance is one of the things you must do in order to find the best rate. Many brokers actually specialize in people with poor credit histories and work with lenders who are more willing to work with you.
Paying the fee to a broker can also pay off for you since they already have established relationships with bad credit lenders.
Your Credit Score and Your Refinance
Your credit score of FICO score is likely to have the biggest impact on your ability to refinance with bad credit. Anything below 620 and it is not likely that anyone will want to take the risk of lending to you. That said, if you are above this threshold you can generally expect the following ranges (note: these are estimates only and vary from lender to lender):
- 760 and above and you will qualify for the best rates
- 680-700 about .25% higher
- 660-680 about .50% higher
- 640-660 about 1% higher
- 620-640 about 1.5-2% higher
Repairing Your Credit Report and Score
As you can see, it is extremely important that you check your credit score prior to doing a bad credit refinance. You should obtain your score from all three credit bureaus since they all maintain different databases and your credit score will likely be different at each of them.
Look for erroneous information and things that should not be on your report. If you don’t find any and your score is still low, you likely have more serious issues that are related to paying monthly balances.  If you do find these, you must take steps to resolve the issues.
Do this before getting a bad credit refinance.
Conclusion
It will certainly be more challenging for you to refinance without good credit but it’s not impossible. By working with the right broker and taking proactive steps to repair credit problems, you will increase your chances of success dramatically. Depending on your situation, the benefits of a bad credit refinance can far outweigh the near term hassles.
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