If you need a bad credit mortgage refinance loan,it may be a frustrating, maddening and even a humiliating experience. You would love to take advantage of a refinance in order to lower your mortgage payments, but find it difficult because your credit score is just too low.
The Three “P’s”..Prior…Proper..Planning
It is tempting to give up, but it is not necessary, because there are ways to refinance your mortgage loan even with bad credit.
Before you begin your quest to obtain refinancing for your current loan with poor credit, consider two things. First, consider using a mortgage company that specializes in bad credit mortgage financing.
Secondly, do whatever you can to clean up your credit report before you attempt to refinance your loan.
Because traditional lenders may shy away from refinancing individuals with poor credit scores, it might be a good idea to find a lender who specializes in bad credit refinancing.
However, it would prove wise to try traditional lenders first, while avoiding lenders that you know very little about. Often times, traditional lenders have special programs for individuals with bad credit ratings.
Lendingtree.com would be a good example of this, because they are a traditional lender with a special program for people rebuilding their credit. You can get a free quote with no obligations.
Do note, however, that you will end up paying higher interest rates when you refinance with whoever you choose to refinance your loan with due to a low credit score.
Another important step in securing a bad credit refinance is to fix any credit problems that you can. This will increase the likelihood of you receiving better terms.
Apply For A Free Credit Report And Check For Errors
Obtain a copy of your credit report from the “big three” credit bureaus. Scan it carefully and look for any mistakes.
If you find any, notify your creditors or the bureaus immediately. Also, if possible, try to pay down any credit cards that are near their lending limits. This makes you look better to the mortgage lender.
Remember, just do what you can and then carefully and methodically research possible mortgage refinancing companies.
No matter what kind of credit problems you might have in your past, there are things you can do to get a lower rate and better terms on a refinance mortgage.
Here Are Eight Tips To Increase Your Chances Of A Lower Rate And Fees
1. Strengthen Your Employment Factor – Stay at your job. See if you can get an increase in salary. With past credit problems, lenders will be looking more closely at the time you have spent at your job and at your salary.
They will calculate your debt to income ratio. With bad credit, your debt-to-income ratio will need to be well in the clear.
2. Apply With at Least 2-3 Different Companies – If you have any equity in your home at all, you have something to work with. Yet, mortgage brokers have a tendency to make subprime borrowers feel like they have very few options.
Most lenders nowadays have programs for borrowers with all types of credit. Subprime mortgage loans should be only 1-2 points above prime interest rate, depending on the borrowers credit.
3. Refinancing From a Variable Rate or ARM to a Fixed Mortgage – A variable rate mortgage is sometimes good when you start out in a home, to take advantage of low rates, but once you find a period where interest rates might start climbing and your “rate lock” period is almost over, you might want to consider moving to a fixed rate mortgage loan for long term security.
4. Work on Increasing Your Credit Score – There are many things you can do to improve your credit score and every few points you increase your score will help you get a lower interest rate and better loan terms.
Paying your bills on time and reducing the debt amount on your revolving credit accounts are two sure ways to improve your credit score. Search online for more ways to improve your FICO credit score.
5. Make Sure To Get a Few Loan Offers – You should obtain at least 2-3 mortgage loan offers before you commit to working with a lender. Ask for interest rate quotes and estimated loan fees. This will give you leverage when negotiating a lower interest rate and lower closing costs.
6. Excessive pre-payment penalties – Watch out for a pre-payment penalty longer than 6 months to 2 years.
7. Avoid an ARM Loan – If you have a decent interest rate now that is a fixed rate mortgage. It’s probably best to keep that loan before you consider replacing it will a lower interest rate Adjustable Rate Mortgage.
After the initial payment lock period of the ARM loan, your interest rate could skyrocket and without good credit behind you, you might not be able to refinance for a lower rate. This is a risky loan for someone with poor credit.
8. Watch For Unusual Fees – Some fees that brokers might add to your mortgage loan that are not completely necessary are:
a) Mortgage origination fees should not be more than 2%.
b) Warehouse Fee – Not necessary
c) Fax Fee – Not necessary
d) Consulting Fee – Not necessary
e) Endorsement Fee – Not necessary
There are several other fees that a broker might add to your mortgage loan. Do your research and make sure that your broker is not charging you unnecessary fees or necessary fees at an inflated rate.
For a complete list of “junk fees” that mortgage brokers might try to add to your loan, visit: http://www.mortgagesanity.com.
Consider the penalties to see if it’s worth the cost to refinance your home. Calculate the payments from the time you start the new loan until the pre-payment penalty is up. You will be locked into those payments for the allotted time.
Calculate the cost of the fees for refinancing. If you are refinancing to get cash-out, consider getting a home equity loan instead.
Refinancing you mortgage loan with bad credit can be a frustrating experience. However, like with most things, a little patient, persistence and resourcefulness will bring you closer to finding refinancing terms that work well for you.