There are plenty of reasons
your mortgage. You may have gotten a large increase in income
and wish to pay off the loan sooner. Or, maybe you have a fixed-rate mortgage
and want to refinance to get lower interest rates. You may even want to switch
from a fixed-rate mortgage to an adjustable-rate loan, or vice versa. Whatever
the case for refinancing may be, if you have a bad credit score, you may have a
hard time refinancing.
Refinancing with bad
credit can be a vicious cycle. You try to refinance to save money, but, the
lower your credit
, the more refinancing will cost you. Unfortunately, the interest rate
on your loan is tied into your credit score; the lower your score, the higher
the interest rate. On top of that, many lenders have been raising their
qualifying standards, making it more difficult for people to procure loans and
This can be pretty discouraging for those with bad
credit. If you have bad credit, you are already not in the best financial
situation. By refinancing, you can lower your monthly payments, which can
improve your finances. At the same time, you may want to increase your monthly
payments, in order to build equity faster and be done with the mortgage sooner.
If you have bad credit, though, these goals will be further out of reach.
What You Can Do
Though it may be more difficult to refinance
your mortgage with bad
, that doesn’t mean it’s impossible. There are many lenders who deal
specifically with borrowers who have bad credit. The key to finding a lender to
refinance with is to look around at different lenders. Contact several of them,
especially those focusing on bad credit loans.
These lenders will then
look into your credit history and see where you stand regarding loans and debts.
Even if they specialize in lending to those with bad credit, they still want to
make sure you can handle the terms of the loan and make the payments on time.
Additionally, they will take the reason for your bad credit into account. If you
have made previous mortgage payments on time, you will have a better chance of
getting a good deal for your refinance. If, however, your credit score is low
because of missed mortgage payments, you will have a much harder time (more
about this below).
TIP: You can hire a mortgage broker to help you
find a lender. Keep in mind, though, that this service will cost some
If some lenders are willing to give you a refinancing loan, carefully
look into the terms and conditions of what they offer. Each lender is different,
and so are their offers. Consider each one before accepting the refinance. You
certainly don’t want to risk going with a bad lender or taking out a loan that
you can’t afford, causing your credit score to decrease even more.
Some people develop bad credit because they
have been late with mortgage payments. In this case, it is even more difficult
to refinance. If you have had trouble making mortgage payments in the past,
other lenders will be hesitant to give you a new loan. However, all hope isn’t
lost. Through a process called loan modification, those with a history of late
mortgage payments can refinance their loans.
Loan modification involves
reworking the conditions of the current loan rather than refinancing with a new
loan. This option is specifically for people who have experienced financial
hardships or who have missed three mortgage payments. Additionally, in order to
qualify, one must not have filed for bankruptcy
purposely defaulted on his or her payments.
Some people may still be unable to qualify for
refinancing or a loan modification. Those who have filed for bankruptcy, have
extremely bad credit, or have undergone some other type of financial hardship
can have a difficult time coming up with a solution to their problems. If you
fall into this category, you may have no other choice than to give yourself a
year or two to raise your credit score.
One way to increase your
credit score is to pay off any high-balance credit card bills. By making one
large lump sum payment, rather than making small payments over a long period of
time, your credit can improve quickly. You could also work with a mortgage
broker or lender, who can look at your finances and help you identify ways to
improve your score. Once your credit has improved, you will be in a better
position to refinance.
As you can see, bad credit doesn’t necessarily
mean you can’t refinance your home loan. There are lenders who specialize in
refinances for those with bad credit, loan modifications for those who still
can’t qualify for refinancing, and ways to improve credit for those with
financial hardship. Basically, anyone can refinance; it just may take some