So you’ve been in your home for a while, and you want to refinance your mortgage. There are many reasons why you would choose to do so including getting a lower interest rate or changing from an adjustable interest rate to a fixed interest rate.
When you refinance your home, you pay off your existing mortgage payment with a new loan and keep paying on the new loan as you did the old one. If you have a low credit score, you could run into roadblocks or problems in refinancing your mortgage, and we are going to take you step-by-step through the process of refinancing your mortgage with bad credit.
Mortgage Refinance Reasons
The complete first step is asking why you want to refinance your mortgage or do a home refinance in the first place. Normally when someone chooses to refinance their mortgage, it is to obtain a lower overall mortgage payment. Getting a lower payment rate may be tempting enough to cause you to accept a new 30-year term mortgage, but think about how much longer you will be paying this mortgage off, and the interest rate. If you have a blemish on your credit, or your credit score has gone down, this will be a little trickier, but it is possible.
Bad Credit Loan Options
There are several loan options out there for people refinancing with bad credit. The first loan I want to talk about is HARP 2. The Federal Government overhauled the home affordable refinance program (HARP) after the Great Recession. The aim of this revision was to allow homeowners who owe more than the home is worth to refinance. You can apply for this program through HARP.gov, and some of the criteria you have to meet for this program are:
Applicants must have kept current on mortgage payments for at least the last six months.
Applications must not have missed more than one mortgage payment in the past 12 months.
Applicants must have a steady source of income.
Applicants must receive a benefit from refinancing, like a lower monthly payment.
If you financed your original mortgage through an FHA loan, you might be able to refinance that as well. As a general rule, FHA loans have easier refinance options and more mild qualifying conditions. To qualify for this refinance option, you must have never missed a mortgage payment with your FHA loan. If you did, you’re out of luck.
It pays to shop around if you have bad credit and are looking to refinance. Make sure you research the loan terms and company you are thinking of using to avoid any costly mistakes. It’s okay to ask for a second opinion or talk to your mortgage company itself because they’ll usually know of reputable lenders and point you in the right direction.
Improve Your Credit
If neither of these options appeals to you, you can take some time and work on raising your credit score. Start by getting your free annual credit score and seeing where you stand. You can get a free copy of your reports once a year by going to http://www.annualcreditreport.com and requesting one. As soon as you know where you stand, start making a plan to improve it.
Create a budget or talk to a financial counselor and ask for tips or advice and stick to your budget once it’s established.
Pay off as much debt as possible
Catch up on your mortgage payments as soon as you can if you’re behind
Don’t take out a quick loan or payday loan as that can put you in a deeper hole.
Start an emergency fund for unexpected expenses
All of these little things will help you improve your credit and get you eligible for refinancing options. It will take some hard work and perseverance, but it is possible for you to improve your credit enough to be eligible for many different refinancing options.