Is Refinancing Possible For Someone With Bad Credit?

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Keeping up with the monthly expenses involved with owning a home can be a stressful endeavor.  Many homeowners would agree that this stress is mostly due to mortgage payments.  Juggling a costly mortgage payment along with other expenses (such as credit card bills, utilities, groceries, etc.) has caused many Americans to fall behind on their debts.  Unfortunately, this can result in a poor credit rating.  Those with bad credit, who are looking for a way to manage their debts, may want to consider a “bad credit” mortgage refinance loan.  For many Americans, a bad credit mortgage refinance loan has been effective in helping them return to financial success.

A bad credit mortgage refinance is similar to a standard mortgage refinance loan for those with good credit.  In both situations, the goal for the homeowner is to lock in a lower, fixed-rate Annual Percentage Rate (APR) than they have with their current lender.  The low interest rate is attractive because it means that the loan will accrue less interest during its lifetime.   

Another attractive feature of the bad credit mortgage refinance loan is that it could mean a lower monthly payment.  This is often the most appealing part of home loan refinancing for those with bad credit; the lower monthly payment can free up the borrower’s monthly income, allowing them to get “caught up” on other outstanding debts.  This can benefit a borrower in that lowering other debts will eventually lead to an improvement in their financial situation and credit rating. 

However, it is important to understand that the bad credit mortgage refinance agreement will not be identical to the agreement someone with good credit might receive.  A bad credit mortgage refinance loan may carry a higher interest rate or charge different fees than other refinance programs would.  This is due to the fact that someone with a good credit rating is considered more financially responsible than someone with bad credit, at least from a lender’s perspective.  It is still possible, though; that the bad credit mortgage refinance rate offered would be lower than the rate the homeowner is currently paying.

It is important to note that a bad credit mortgage refinance loan is not a “sure thing”.  Many loan companies simply do not offer refinance loans to someone with poor credit.  However, a growing number of loan agencies are getting involved in bad credit mortgage refinance programs; you may have to spend a bit more time shopping your options in order to find the right lending company willing to refinance your home loan, even if you have bad credit.

The important thing to realize is that although your local hometown bank may never consider a bad credit mortgage refinance loan, there are companies who will. Now is not the time to give up hope and let a lending company repossess your home. The more equity one has in their home currently, the more likely it will be that the homeowner will be able to find a lender to help them in their time of dire financial need.

There are steps a person can take if a bad credit rating has hindered them in securing a refinance on their mortgage.  The first thing they should do is request a copy of their credit report.  If a person has been turned down for new credit, a credit-reporting agency will supply this information at no charge.  The reason borrowers should do this is so that they can thoroughly review the information the report contains.  It is not uncommon for a credit report to contain inaccuracies or outdated information.  If the borrower finds that this is the case, it is imperative that he/she corrects this information to improve their credit rating.

Lastly, if the borrower finds that they only qualify for a bad credit mortgage refinance offer, they should shop around for the best available rates and fees.  After securing a bad credit mortgage refinance loan, it is important that the borrower stay up-to-date on their payment schedule.  Ideally, the borrower will get and remain timely with their other bills as well.  If this occurs for a year or longer, significant improvements may be seen in the borrower’s credit report.  At that point in time, it may be possible for the borrower to reapply for mortgage refinancing and secure an even better rate, than the one acquired through the bad credit mortgage-refinancing loan.

Sometimes bad credit happens to good people.  Unforeseen circumstances can occur in any person’s life that may cause financial hardships.  The good news is that more and more lenders are seeing the need for bad credit mortgage refinances.  Anyone with bad credit who is interested in turning their credit troubles around, should look into home loans of this type, if they cannot get regular financing from other lenders. 

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