Ways to ReFinance MortGage Bad Credit in 2019 – Complete Guide.
MortGage Bad Credit… Do you want to reduce your mortgage payment but think that you can’t because you can’t refinance with bad credit? Need not to worry, this article will list a number of ways you can refinance mortgage bad credit.
ReFinance MortGage Bad Credit
Now let’s see what financing is all about. Refinancing a mortgage means that you are paying off your existing mortgage and replacing it with a new loan. The cost associated with refinancing are included in the loan, meaning that the costs are added to the existing balance, thus increasing the amount of loan.
Reasons for Refinancing
- Lower monthly payment
- Get a lower interest rate
- Remove mortgage insurance
- Pay off a mortgage faster
- Get cash back
- Switch from an adjustable-rate mortgage to a fixed-rate
When you refinance a mortgage, the term resets; if you get a new 30-year loan with the lower mortgage balance your monthly payment could be significantly lower.
13 Ways to Refinance Mortgage Bad Credit
1. Contact Your Current Mortgage Company
The first place to start is with your current lender. Many at times, they have several refinancing options available for current customers. Your current lender may have a streamlined rate and terms of refinancing that will get you a lower rate and payment.
2. Find a Bad Credit Refinance lender
If one lender denies a refinance loan because of your low credit, you can always look for another lender. Each lender has different criteria, and some lenders even specialize in loans for borrowers with less-than-stellar credit. You can get free refinance quotes on Zillow (anonymously, and without pulling a credit report) to compare offers from multiple lenders. Be sure to enter your credit score to find quotes for low credit.
3. Recast Your Mortgage
A mortgage recast is when a borrower pays a large amount of money towards their loan and the loan is re-amortized. Which means the new lower balance will be recalculated, lowering your monthly payment.
If you were to make a large payment without recasting your mortgage, the principal would be reduced but your payment would stay the same.
The good news is that you can do this with bad credit; lenders do not check credit when recasting a loan. Contact your lender to see if they offer mortgage recasting and see if it’s a good option for you.
4. Show Your Financial Savings
If you’re expecting a rise in the near future or you have plenty of savings in your bank account, those are also things you’ll want to draw attention to when making your case for a refinance. After all, lenders want borrowers to have cash reserves. If you have an emergency fund, you’ll have the means to repay your loan even in the event of an emergency.
5. Look into Government Refinance Loans
The federal government has programs in place that help people with bad credit reduce the size of their mortgage payments. For example, the Home Affordable Modification Program (HAMP) helps troubled homeowners lower their mortgage bills to at least 31% of their pre-tax monthly income. If your lender doesn’t participate in HAMP, you may qualify for another form of loan modification.
Another option involves applying for a refinance loan through the Home Affordable Refinance Program (HARP). This initiative assists underwater homeowners. If you are up-to-date on your mortgage payments, you may qualify. A new version of the program (known as HARP 2.0) lets homeowners refinance regardless of how underwater they are.
The Department of Housing and Urban Development (HUD) is another resource. The agency offers free housing counselors who can discuss your options with you. It’s always a good idea to speak with an expert before committing your money to another loan.
6. FHA Streamline Refinance
If you have an FHA loan you can get a lower rate and payment with an FHA streamline refinance. Streamline refinancing is available for government-backed home loans including VA loans and USDA loans. The process is streamlined requiring less paperwork and verification.
7. VA Interest Rate Reduction Refinance Loan (IRRRL)
For borrowers with a VA loan, they can refinance their loan with the VA IRRRL program. It is basically a streamline refinance for a VA mortgage.
They are done without a home appraisal, income verification, and some lenders may be able to do a streamline refinance with bad credit.
However, you will have to meet some criteria to qualify. While some lenders require a 620 FICO score, other mortgage lenders may allow for a lower credit rating or not perform a credit check at all.
- The mortgage must be current
- No late payments over the past 12 months
- No appraisal is required
- The lender must be FHA approved
- Must have owned the home for at least 6 months
8. Home Equity and HELOC Loans
A home equity loan uses the equity in your home as collateral for a second mortgage on your home. HELOC stands for home equity line of credit which works like a credit card. Many people choose these types of loans as an alternative to a debt consolidation personal loan.
Home equity loans with bad credit are possible. However, mortgage lenders are more resistant because they will be a second lien holder on the mortgage.
9. Cash-out Refinance
If you have a poor credit rating then a cash-out refinance is easier to qualify for. A cash-out refinance is a new loan that pays off your old one. You can get cash for the difference between the balance and 80% of the value of the home. Cash-out refinancing is a more realistic option for borrowers with bad credit.
10. Check Your Local Credit Union
Credit Unions are more relationship focused than a big bank or an online lender. If you’re a member of a credit union and have a good relationship with them then you should speak to them about refinancing your loan. They are more likely to overlook a poor credit score to help a long-standing customer.
11. Improve Your Credit Score
It’s important that you review your report in order to identify what’s hurting your credit. Once you pinpoint what’s dragging your credit score down, you can take steps to fix the bad credit issue(s) that you identified during the review.
There are two ways to do that: the first way involves correcting errors in your credit report and improving your credit record. If you have negative items on your report, you can dispute them with the Credit Bureaus.
Once you know all the negative items on your report you can contact each credit bureau and dispute the accuracy of the item.
How to raise your credit score before refinancing a loan
- Don’t make any late payments
- Pay down credit card debt to less than 20% of the credit limit
- Do not apply for new credit accounts
- Dispute negative items on your report
12. Make the rest of your Application Attractive
Bad credit history alone won’t sink your refinance application. Lenders will also be looking at the rest of your loan packet when making a final decision on your refinance loan.
Make sure that the rest of your loan application is in order can help to offset what your credit history is lacking.
Be ready with your income statements, bank statements, and tax forms. Also, show stability by keeping your debts to a minimum and having a cash reserve in the bank. A low debt-to-income ratio is another compensating factor for poor credit.
In short, do everything within your power to make your overall loan application more appealing to the lender.
Compensating factors for bad credit
- High income (low debt-to-income ratio)
- Low loan-to-value ratio
- More than 5 years at current employer
- Large amount in savings
13. Remove a Co-Signer
Mortgage lenders use the borrower with the lowest credit score to determine rates and fees. Adding a co-signer or non-occupant co-borrower with excellent credit won’t help you get a better rate. But having a co-signer or co-applicant on your loan with a lower credit score will result in a higher rate and fees.
If there is someone else on your mortgage that has bad credit, it’s a good idea to have them removed from the mortgage. This will make you look less risky and you’ll get a better deal when you refinance.
HOW TO QUALIFY FOR REFINANCE.
First, you will need a qualifying reason such as lowering your monthly payments, switching from an adjustable-rate mortgage and into a fixed-rate loan (among other qualifying reasons) to refinance.
Additionally, you have to be up to date on your current mortgage payments. You cannot have more than one 30 day late payments in the past 12 months to qualify. A streamline refinance saves FHA borrowers an average of $180 per month.