How to Refinance Homes With Bad Credit
Refinancing a home can be a great option if you want a better interest rate on your mortgage to reduce your monthly payment. Realize that refinancing is not limited to good creditholders. Many lenders are willing to work with homeowners with less than desirable credit scores. Additionally, the FHA also provides refinancing options for homeowners with FHA-insured loans. By doing a little research and preparation, you can be on your way to refinancing your home, even if you have poor credit.
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Instructions
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Request a copy of your current credit score. Credit score services, such as Experian and Annual Credit Report, will provide you a free copy. The Federal Trade Commission requires that all consumers be allowed free access to their credit report at least once a year, so you have the legal right to request and obtain this document.
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Contact your current lender to learn your refinancing options. Working with the lender who holds your current mortgage can be easier, because that lender will have less research to do on the property and your history. Also, if you are up-to-date on payments, the lender might be more willing to refinance; after all, you have established a good history.
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Contact other lenders to compare rates. Some lenders specialize in refinancing for people with poor credit, so be sure to call around and explore your options. In some cases, other lenders may provide a better rate than your current lender. That better rate will result in lower payments--your primary goal in refinancing.
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Research if you are qualified for refinancing through the FHA. The FHA offers refinancing for holders of FHA-insured mortgages, and FHA refinancing contains a key stipulation: It must result in a lower payment for both interest and principal. If you qualify, check the list of approved lenders.
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Tips & Warnings
Ask good questions when you contact lenders. Be sure to find out about such details as the possible variability of the interest rate and the term of the mortgage. Each lender will have a different policy, particularly for refinancing with bad credit, so get the fine print details before you commit.
Be sure to find out the closing costs. These are seldom factored into the loan cost (except through the FHA). If the cost is significant, you might find the overall deal is no longer worth it because you are not actually saving much over the life of the loan (since you will have paid closing costs once before). Take the time to ask various lenders about this when you call.
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