Refinancing with Bad Credit

Many years ago, it would have been difficult for those with bad credit to obtain a mortgage loan in the first place. However, today there are so many loan options available and so many ways for lenders to protect themselves that those with bad credit can not only find a suitable mortgage but can also find appealing re-financing options as well.

Those with bad credit must carefully consider whether refinancing is ideal for them now, but the process is not much different from those who have good credit. Those with bad credit who want to learn more about refinancing should consult a mortgage advisor who specializes in mortgages for those who have bad credit. Also, homeowners must carefully evaluate their credit score, whether it has improved or not. Finally, homeowners must carefully evaluate their choices to make sure they make the best decisions.

Consult with a Mortgage Advisor

Consultation with a mortgage advisor recommended for those who have bad credit. Homeowners may know the refinancing process, but their situation requires consultation with an expert. This is important because mortgage advisers who specialize in obtaining mortgages and refinancing for those with bad credit know very well about the types of options available to homeowners.

When consulting with the mortgage advisor, the homeowners should be completely honest about their financial situation and should provide the expert with all of the information he needs to assist them in finding an ideal re-financing agreement. Being completely candid will be very helpful in enabling the mortgage advisor to assist the homeowner in the best way possible.

Consider Whether or Not Your Credit has Improved.

Homeowners with bad credit should carefully consider whether or not their credit has improved since the original mortgage was secured. Homeowners who have documented proof of past credit scores can compare these scores to current values. Each citizen is entitled to one free credit report per year from each of the major credit reporting agencies. Homeowners can obtain these reports for use in making comparisons to the previous credit scores. Imperfections on the credit report such as bankruptcies, delinquent or missed payments, and other transgressions do not remain on the credit report.

These blemishes often erased from the credit report after a certain period. The amount of time the transgression remains on the report is proportional to the severity of the offense. For example, a bankruptcy will remain on the credit report for significantly longer than a late payment. In examining the credit report, homeowners should consider the overall credit score but should also note whether or not previous offenses erased from the credit report in a timely fashion.

Evaluate Refinancing Options Carefully

Once a homeowner has tentatively decided to re-finance the mortgage, it is time to start considering the many options that are available to the homeowner during the process of re-financing. Most homeowners mistakenly believe one factor of the re-financing process they have no control over is the interest rate. While this rate is mostly dependent on the homeowner’s credit score, even those with poor credit can lower their interest rate by purchasing point. A point is typically equally to 1% of the total loan amount and may translate to a ¼ of a percentage point on the interest rate. When deciding whether or not to purchase points, the homeowner should carefully consider the amount of time it would take the homeowner to recoup the cost of buying the points. This will help to determine whether or not it is worthwhile to buy one or more points when refinancing.

Homeowners also have the option of the type of loan they choose when refinancing. Standard options include mortgages with fixed interest rates, mortgages with adjustable interest rates (ARM), and hybrid mortgages. Interest rates remain constant with fixed-rate mortgages, adjust to ARM and are set several times and can adjust for the remainder of the loan period with a hybrid loan.