Refinancing your Mortgage, even if you have Bad Credit

It seems that in recent years, there has been ample news about lowering interest rates. Interest rates are quite volatile, however, so what might be low today might be lower tomorrow. If that isn’t maddening enough, it can be especially frustrating when rates hit a lucrative low, but you don’t feel positioned to refinance your mortgage due to a low credit score.

If you have a slightly lower credit score, generally categorized as a score lower than 580, it doesn’t mean that you will be left out from the ability to refinance your mortgage. In fact, if you can refinance your mortgage, the better terms and payment requirements may work in your favor not only to save you interest but to help you get your credit back on track.

5 strategies to refinance your mortgage, even if you have bad credit  

Though it may seem that you don’t stand a chance of refinancing, this does not need to be the case. Of course, the finest thing you can perform is to look for opportunities to repair your credit score quickly. These two tips provide tactics for you to explore as you look to boost your credit score at the same time that you explore various refinance options.

  • Download your credit report from FICO or one of the main credit bureaus (these are usually available for a fee) and look through the report carefully to identify potential inaccuracies. Even with good credit, it is worth taking the time to explore this option. If you find no problems, you may have just lost a few hours, but if you find a problem, taking time to correct it will save you quite a bit of trouble in the long run.
  • Look for ways to pay off certain debts faster. Start with any credit lines where you have a low balance and start to make extra payments. Once that credit line is paid in full, take that payment amount and start applying it (in addition to your regular payment) to the next debt. Before long, you will see your debt start to increase, and your credit score begins to soar.

Once you have taken the proper steps to address the items above, consider these strategies to position yourself for a mortgage refinance. 

  1. Make your application as attractive to lenders as possible. By no means should you provide false information in any way? However, you can highlight key points such as job stability or your consistent ability to pay your bills time to time and on time (there are other explanations than missed payments that can cause your credit score to dip). This is your opportunity to prove to a potential lending institution that you are responsible for. 
  2. Maintain your savings account and ensure that you properly reflect it on your application. Even though you might be inclined to leverage extra cash to pay off debts, lenders want to see that borrowers have some cash in the bank. The presence of an emergency fund shows that you will have money in the bank to provide payment continuation in the event of an unforeseen circumstance. 
  3. Seek a co-signor. Look for someone in your family, or a partner or long-time close friend that would be willing to serve as a co-signatory for your same day loan. This person needs to have better credit than you (ideally in the good range or higher) and needs to show financial stability on their portion of the application. If you both have bad credit, you definitely will not get approved for a refinance. If you do find someone willing to refinance, make sure that they understand that this will have an impact on their credit score and that they are taking on potential financial liability.
  4. Explore options to refinance through the government. The federal government has good programs that assist homeowners with bad credit to reduce the sum that needs to be paid on their mortgage each month. As an example, the Home Affordable Modification Program (HAMP) helps homeowners to lessen their mortgage bills to a reasonable ratio of their monthly income. The Home Affordable Refinance Program (HARP) assists underwater homeowners. You may qualify for a refinance if you are up-to-date on your mortgage payments. Finally, the Department of Housing and Urban Development (HUD) provides free housing counselors who can discuss loan options with you.

Refinancing your mortgage with bad credit may be difficult, but it is also possible. And, if you find you are not able to secure a refinance option now, work to repair your credit over the next six to 12 months, and then try again, especially if your credit score has gone up 30 points or more. This may be enough to move you into a good consideration instead of just fair or poor.

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