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Bad Credit Refinancing

Almost every type of loan for a mortgage refinance will require quite a bit of documentation and asset verification, but this is even truer for a bad credit mortgage.  In fact, it is true that many of the programs that used to cater to consumers with poor credit are not available any more.  The parameters of bad credit have also changed.  Five years ago, anyone with a credit score above 500 could easily find a loan program.  Nowadays, it can be difficult to qualify for a loan if you don't have a credit score above 620.  Although it is more difficult than it used to be, you can still find ways to refinance your home with bad credit. 

 

There are many factors to consider when considering mortgage refinancing, and one of the first things you need to look at is the available loan programs.  You want to be sure that refinancing your home makes good financial sense.  For instance, if you are refinancing from an Adjustable Rate Mortgage (ARM) to a fixed rate mortgage, that makes sense if your new rate is lower than the expected ARM payment when it adjusts. 

 

Another factor is your debt to income ratio.  If your overall debt is high when compared to your income, you may not qualify for a fixed rate mortgage refinance.  However, you may qualify for a cash-out refinance if the cash you get from the loan is used to pay down debts with a high rate of interest so that you are effectively lowering your debt to income ratio. 

 

Refinancing may not make sense if the closing costs are very high and you are only planning to be in your house for a short time.  If you plan to move within a year or two, paying the closing costs on a mortgage refinance doesn't make much sense.  However, if you plan on staying in the home for many years and will be able to recover the closing costs because of the lower interest rate, it can be well worth the effort of refinancing. 

 

Your current lender may be willing to offer a streamlined refinance where the closing costs are minimal and there is little paperwork.  Paying the closing costs rather than rolling them into the loan usually means you won't need an appraisal. 

 

Even if you have bad credit, you can find a mortgage refinance program that can work for you.  Just be sure to evaluate if it will really help your situation, and if it will, don't wait until the interest rates go up again.