How to Refinance With Hurt Credit

Special programs, like FHA loans, provide refinancing for homeowners with hurt credit.

When interest rates decrease, borrowers can save money refinancing a mortgage. A lower interest rate means lower monthly payments and reduced financing costs over the long term. However, people struggling with poor credit run into challenges securing financing. Targeting lenders who offer financing to people with poor credit will make it easier to secure financing.

Instructions

1. Ask lenders about FHA refinances. FHA loans are backed by the Federal Housing Administration. These loans provide easier qualifying criteria. Borrowers with a history of bankruptcy or other negative credit activity may still qualify. An acceptable credit score is 620 or higher for an FHA refinance.

2. Apply for refinancing with private lenders. Private investors pool funds to provide loans. Some of these lenders specialize in high risk lending. Loan brokers can connect you with groups of private lenders offering refinance products.

3. Contact credit unions. Credit unions are non-profit. Profits are returned to members with reduced interest rates. Many credit unions make local lending decisions. This means a credit union manager evaluates your application. This provides an opportunity to make your case. Explain the circumstances that lead to poor credit. Show proof of timely payments to lenders or other recent changes in credit history.

4. Compare lender fees. Lenders charge closing costs to refinance a mortgage. This can cost hundreds of dollars, depending on the loan value of the home. Negotiate fees with the lender. Focus on negotiating fees that are handled in-house. For example, processing fees or application charges are usually negotiable. Choose the lender who provides the lowest interest rate and closing costs.

5. Sign refinance documents. After processing the loan, the lender will schedule a time to sign documents. Review to make sure the fees and interest rate are accurate before signing.

Tips & Warnings

• Refinancing with a low credit score means higher interest rates. However, after making timely payments, talk with the lender about lowering the interest rate. Some lenders offer no cost refinances that make it easy to lower the rate.

• Don't forget to review your credit report. Annual Credit Report provides a free credit report each year (see Resources). Dispute information that isn't accurate. Late payments that aren't correct can drag down your credit score and make it more difficult to refinance.

References

• MSN Money: What Bad Credit Really Costs You
• FHA Loans: Qualifying Summary

Resources

• Bank Rate: Compare Rates
• Annual Credit Report: Free Credit Reports