For homeowners struggling with monthly mortgage payments, refinancing their mortgage can be incredibly helpful, even though they have a less than perfect credit rating. It can literally make the difference in making ends meet or not. The question may rest on how much monthly savings there is versus the expense of refinancing.
Refinancing is the process of acquiring new loan terms by paying off the existing mortgage loan with funds from a new loan - typically one with lower monthly payments as a result of either a lower interest rate, to remove Mortgage Insurance or a longer loan term. Although refinancing with damaged credit can be difficult, more lenders are lowering their credit score requirements, especially with FHA financing. Below is a list of companies that can help you refinance your mortgage or repair your credit to prepare for such refinance:
Depending on your credit score, refinancing into a lower rate may not even be possible since interest rates correlate with borrower risk and credit scores, borrowers with bad credit can expect to pay higher interest rates than those with good credit. But you would be surprised to see it is really not that much difference. If your current rate is too high, there might still be room for improvement, or you might even consider refinancing into a lower adjustable rate if you don't intend to live in your home for over five years.
If you have accumulated bad credit as a result of high levels of credit card debt or factors unrelated to mortgage payments, a refinance may be worthwhile even if the interest rate is a little higher than for an A+ borrower. However, borrowers with multiple late mortgage payments over 30 days may want to wait until 12 months has passed before applying. If there are 60 day late payments then may want to look at a modification with your current mortgage servicer.
For struggling homeowners, refinancing can alleviate the burden of higher monthly mortgage payments. With a reduction in monthly costs, homeowners have the opportunity to improve their credit ratings and eventually improve credit scores, which in turn offers even better mortgage terms by refinancing. In addition, a bad credit home loan refinancemay give homeowners the chance to forego a payment between the cancellation of the old mortgage loan and the reinstatement of the new one, providing another opportunity for desperate homeowners to recover their finances.
Furthermore, refinancing may benefit homeowners that presently have adjustable rate mortgages. Even if a borrower cannot qualify for the lowest rates, he or she can refinance to prevent and variable rate mortgage from resetting to a higher rate or monthly payment. Since interest rates are currently near historic lows, it may be improbable for a standard ARM to reset to a substantially higher rate, allowing some homeowners to take advantage of the current low rates. But, at the time of this writing, mortgage rates are increasing which will open the door for those homeowners with an ARM loan to move forward with a refinance.
With all the news mortgage laws put in place since 2009 lenders are not allowed to even complete a mortgage transaction unless there is a significant advantage to doing so. Typically there must at least a 5% reduction in the homeowners’ obligation to even receive an approval.
The cost of refinancing versus the monthly savings is a major factor. Normally the closing costs must be made up for within a three to four year period to be really advantageous, especially if the plan is to refinance or sell and buy again in that same time frame.
Consumers should get a copy of their credit report as soon as possible before sitting down with a lender. By law, once a year every US citizen is allowed to see and download their credit report at www.AnnualCreditReport.com. Our suggestion is to show that report to a local licensed loan officer for feedback. Maybe you can do the repair yourself or maybe they can refer you to a reputable credit repair company. Fees for their service can range from one flat fee to a monthly fee until the required credit score is reached. Most average around $100 intro fee and $50 monthly.
To secure the best possible rates, you should try to increase your score, and an easy way to do so is to reduce the credit card debt to fewer than 35% of the credit limits on each card. Many individuals find that their score can be dramatically improved within a month by reducing credit cards balances. An experienced mortgage consultant may even assist you with a plan on how to improve your credit score over a few months or a year. Bad credit refinance mortgage loans can be expensive – unless you need to refinance immediately. Often a better strategy would be to bide your time, because even if rates go up, the rate that you qualify for will be lower than if you were to have serious credit issues.
Borrowers should take time to do the research and shop around. As a result of lower credit averages, many lenders specialize in home loans with less than perfect credit scores. Borrowers should acquire their credit scores and contact anywhere from 2-3 local lenders to ask about their fair credit mortgage rates and terms. With this process, you should be able to find out the lowest terms and rates for you.
For borrowers considering a refinance with credit issues, visit our Lender411 Find a Lender page to access a large database of lenders qualified for all credit situations, bad credit home refinance included. This page allows homeowners to conveniently find local, credible professionals with a few simple mouse clicks. Make a few calls and read their blog posts and the answers are easy to find.
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