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4 Options For Refinancing A Mortgage With Bad Credit

Do you have a bad credit score? If so, you might think that a refinance is completely out of your reach. Hold up it might not be. There are a few methods and special circumstances to help you possibly refinance with bad credit.

Well take a look at a few ways you can refinance your mortgage even with a lower credit score. Well give you a quick refresher on what a refinance is and offer a few simple tips you can use to raise your score before you refinance.

Understanding Refinancing

A refinance is a loan that replaces your current mortgage with new terms, a new interest rate or a different loan balance. Refinancing means that you first pay off your old loan with your new loan, then make payments on your new loan.

  • Change your loan terms. Are you having trouble making your monthly mortgage payments? You can refinance your loan to a longer term, which gives you more time to pay back what you owe while lowering your monthly payments. You can also refinance to a shorter term if you want to pay off your loan faster. You may also be able to refinance to a lower interest rate to save money over the life of your loan.
  • Remove mortgage insurance. Do you have an FHA loan? If so, you may already be aware that you must pay a Mortgage Insurance Premium (MIP) for as long as you have your FHA loan, if you put less than 10% down on the home. Many homeowners hold their FHA loans only until they reach 20% equity, then refinance to a conventional loan. This allows them to forgo the mortgage insurance requirement and save money.
  • Take cash out of your property. A cash-out refinance allows you to accept a loan with a higher principal balance than you owe and take the rest out in cash. The cash you get from a cash-out refinance can help you pay off debt, cover home repair costs and more.

Applying for a mortgage refinance is similar to applying for your original home loan. Youll choose a lender you want to work with, make sure you fit their qualifications and apply.

The lender will ask you for some financial documentation, order an appraisal and underwrite your loan. Youll then get a Closing Disclosure that includes your new loan terms and the costs you need to cover. Finally, attend a closing meeting with a settlement agent, sign on your new loan and start making payments.

Your Options For Refinancing With Bad Credit

Your credit score plays a major role in whether or not youll meet the requirements to refinance. Certain lenders may not be able to give you a loan if your score is below 620. However, there are a few options for refinancing with a credit history thats less than ideal.

1. Apply With A Non-Occupying Co-Client

One option is to apply for a refinance with a have a glance at the weblink non-occupying co-client. This is someone who doesnt live in your home but is willing to take financial responsibility for your loan if you default.

In this situation, your lender considers both of your credit scores, income and assets when they underwrite your loan. Depending on the type of loan you get, your co-signer may need to also be on the title of your home.

The credit score that counts is the lowest median credit score between the two of you, so although having a co-client can help you with lowering your debt-to-income ratio (DTI), youll still need to qualify from a minimum credit score perspective.