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How To Refinance A Mortgage When In Bad Credit
If you want to refinance your mortgage but have bad credit, it can be harder for you as banks have adopted stricter lending standards. However, it's not impossible to refinance a mortgage when in bad credit. Those with lower credit scores will pay more for a refinance in almost all cases- it may not be a question of whether you can get it done, it may be a question of whether it's financially worthwhile. In this guide, you will get some valuable tips and ways to help you decide if a mortgage refinance makes sense for you right now.
Get rates from several lenders. Depending on how bad your credit score is, you may have a hard time refinancing for a lower rate than you already have. Your interest rate is closely related to your credit score, and if your bad credit is because of mortgage payments that are a month or more behind, you most likely will not be able to refinance. For these cases, a loan modification is a better choice. However, if your bad credit is because of other factors like credit card debt, and you are saddled with a high-rate mortgage, you should refinance even though you may not qualify for the lowest rates there are. Also, if you have an adjustable-rate mortgage that's about to reset itself, it may be a good time to refinance. It's not likely that your ARM will set to a higher interest rate, but if you have an interest-only ARM, you could be stuck with higher payments. Shopping around is a good idea any time you need a mortgage, not just for refinancing. There is a lender or broker for every segment of the market- even for those with poor credit. Before you begin shopping, get your credit score. Then, get in touch with at least six lenders and see what they have to offer. Or, you can call a mortgage broker.
Fix your credit before you start shopping. You can get a copy of your credit report from the three major credit bureaus- TransUnion, Equifax and Experian. You are entitled to one free copy of each per year, but it will cost you to get your actual credit score. When you have your score and your report, see what you can do to bring up your score. Some good things to try are paying off credit cards with high balances, and paying off revolving debts. A mortgage broker or a lender may be able to help you figure out what to do to bring your credit score up- depending on the speed with which you need to refinance, this may be a better option than trying to do it immediately. According to FICO, or the Fair Isaac Corporation, you can get a fair rate with a credit score of 660 (roughly five and a half percent on a 30-year note). However, below that threshold, rates shoot up, about half a percent for every twenty credit points. Those with credit scores below 620 will need a cosigner on their loan, if they are able to get refinanced at all.
Refinancing in this tough economic climate can be a difficult decision, and it can be even harder if your credit is not up to snuff. Thankfully, there are many mortgage lenders out there that specialize in helping those with spotty credit histories to get back on their feet.