How to Refinance Your Home Mortgage with Bad Credit
Refinancing your home mortgage is a good way to reduce your interest rate and monthly payments. However, if you have bad credit, you may run into obstacles while trying to refinance. It's common for mortgage lenders to charge very interest rates when the borrower has bad credit, which can negate the value of refinancing. You may also run into unscrupulous lenders who try to scam you. However, if you shop around and investigate potential mortgage lenders, you can refinance your mortgage without any problems.
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Instructions
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Visit a trustworthy website such as E-Loan.com to comparison shop for lenders to refinance your loan. In the online submission form, select a fixed-rate term between 15 and 30 years for your mortgage loan refinance and include your home's current value. Provide the balance of your current mortgage loan, your mortgage lender, the bank where you hold your checking and saving accounts. For best results, don't select the option to take cash out when you refinance your home mortgage loan. Give full disclosure of your bad credit history, including any times your home has been foreclosed or that you declared bankruptcy.
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Compare the mortgage refinance offers of the different lenders. Make sure the lenders are offering a fixed-rate loan with an interest rate below your current rate. Avoid adjustable-rate mortgages and mortgages with a low introductory rate that will later rise. See if there is a penalty to pay off or refinance your mortgage again later. Also ensure that you can afford the monthly mortgage payments, including interest, taxes and insurance. If not, consider applying for a mortgage loan with a longer term. If the lenders on E-Loan.com decline to make you an offer, look for mortgage lenders on another site such as MortgageLoan.com that specializes in providing loans for people with bad credit.
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Check the rating of any mortgage lender you don't recognize on the Better Business Bureau website. If the mortgage lender is not listed there, don't accept its offer. The lender doesn't have to be BBB accredited; however, it should have a good rating, and any complaints should have been satisfactorily resolved. Never assume that you must accept a bad lender just because you have bad credit.
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Know your rights under the law. The Truth in Lending Act was created to protect borrowers when they get a mortgage loan. Potential mortgage lenders must disclose information such as their own identity, the amount to be financed and the future monthly payments. In most cases, when you refinance your mortgage, you will have until midnight of the third day to rescind the credit contract if a TILA disclosure form was provided. If the lender failed to provide a TILA disclosure form, you have three years to rescind the agreement.
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Beware of deceptive advertisements from lenders offering extremely low mortgage rates when you refinance. Some lenders try to lure homeowners with bad credit with low rates which turn out later to be only an introductory rate. Such lenders may also offer very low payments without disclosing that the payments are interest only. In other cases, mortgage lenders may use deceptive terms to hide that a loan is an adjustable rate mortgage, not fixed rate.
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Tips & Warnings
You can get a free copy of your credit report annually from each of the major credit agencies via . AnnualCreditReport.com.
Contact your existing home mortgage loan lender to see if it will permit you to refinance your home.
If you just need cash for home improvements or consolidating other debts, get a home equity loan instead of refinancing.
Don't refinance your mortgage to get extra cash to pay bills, to make purchases that are not for your home or to get out of debt. This will only get you into deep debt that could exacerbate your already bad credit rating.
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