Bad Credit and Refinancing
The process of refinancing your mortgage loan is simple. Lenders perform the same financial background check they performed when you applied for your current mortgage loan. If you have bad credit, your chances of being approved for a refinance are slim. However, there are exceptions to this rule. If you are experiencing financial hardship, you may be eligible for a refinance through a mortgage assistance program.
Other People Are Reading
-
Making Home Affordable & Predatory Loans
-
If you had bad credit before purchasing your home, your existing mortgage loan could be predatory. Predatory lending occurs when a lender makes a loan that is inappropriate for a borrower's financial circumstances; for example, if the borrower has insufficient income to support the loan or too much debt to manage monthly payments. The Obama Administration created the Making Home Affordable program in 2009 to help homeowners with unaffordable mortgages refinance or modify their existing loans to create lower monthly payments. Borrowers with predatory loans can make permanent changes to their loans to help them save their homes.
Qualifying
-
Bad credit is not a consideration when applying for a refinance through Making Home Affordable. Instead, the value of your home and terms of your refinance are essential. In order to refinance through Making Home Affordable, you must owe more on the home than its current value, but not owe more than 125 percent of the loan. Refinancing is only available for Fannie Mae- or Freddie Mac-owned mortgage loans. Also, mortgage payments must be current in order to qualify, which means that you cannot have missed any payments in the last 12 months.
-
Reducing Your Payments
-
If you meet the minimum criteria for Making Home Affordable, you can reduce your interest rate and payments on your mortgage loan. However, Making Home Affordable does not guarantee low interest rates. In some cases, refinancing through advocacy groups such as the Neighborhood Assistance Corporation of America may be your best option. NACA is a not-for-profit mortgage broker that negotiates the terms of your loan with your mortgage lender. NACA does not use market interest rates or credit to determine the interest rate of your loan. According to the "Sun Sentinel" newspaper, homeowners refinancing through NACA garner interest rates as low as 2 percent through its Save the Dream tour.
Additional Options
-
Programs like Making Home Affordable and NACA are only helpful when you can commit to the new modified payments. While credit is not a consideration, sufficient income is. A trial period may be required to determine how well your mortgage payments fit into your household budget. NACA requires that homeowners undergo financial counseling before negotiation begins on their mortgages. NACA counselors are HUD-certified and can help you create a monthly budget to determine how much you can afford each month.
-
