How to Refinance With Bad Credit or a Foreclosure
If you have a foreclosure in your credit history or bad credit in general, it will be difficult for you to refinance a loan on your home. The foreclosure will be an albatross around your neck, notifying every lender that you were unable to make your payments. But even with bad credit, you may be able to refinance your home.
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Instructions
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Examine your credit history. If you are going to refinance your home, you need to understand your credit score and history to know where you are at on the credit spectrum. Credit scores range from 300 to 900 and anything below 600 will make it difficult for you to get good interest rates. If you have a foreclosure or bankruptcy on your report, your score is likely below 600. You can get your credit score and report from the three major credit bureaus--Equifax, TransUnion and Experian.
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Work to fix your credit. If you don't need to refinance right away, work on fixing your credit by paying your bills on time and paying off and closing credit card accounts. Your credit score takes into account both late payments and your overall debt. By working on these, your credit score should steadily improve, but it will take time.
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Expect a higher interest rate. If you are able to find a bank that will refinance your mortgage, then you will likely be required to take a higher interest rate. In some cases, the interest rate will actually negate the positive effects of the refinance and cause you to have a larger payment than your current mortgage.
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Seek an FHA loan. If you can't find a regular bank that will refinance your mortgage, your only chance may be a bad credit refinance through the Federal Housing Authority. The FHA will guarantee the loan, making you less of a credit risk and increasing the chances of your getting a refinanced mortgage.
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