People ask us all the time, how to get a mortgage refinance with bad credit scores. Traditionally, qualifying for a home refinance required high credit scores, but quite a few lenders have carved out a niche offering refinance mortgage bad credit solutions. Refinancing your first mortgage has the potential to shave hundreds of dollars per month off of your mortgage payment. Even better, if you are seeking a home refinance with bad credit, potentially you could save thousands in interest over the life of the loan. However, if you have average or bad credit, you may have sat on the sidelines with some of the lowest interest rates in history. Perhaps you thought that it is not possible with bad credit to refinance your mortgage.
Frequently Asked Questions for People Looking to Refinance a Mortgage with Bad Credit:
Can I refinance with a credit score below 600? – Yes, if you have the compensating factors that the mortgage lender, broker or bank requires for bad credit refinance scores in the 500 to 600 range. Clearly the more equity you can show the underwriter the better. Also, having the ability to prove that you have a strong income and low debt to income ratio enables the mortgage company to take more of a risk.
Can I refinance after missing mortgage payments? It depends, if you had late mortgage payments more than 12 months ago and are current with the mortgage company that services your loan payments, then likely you will be able to refinance with late payments and poor credit. If you are over 30-days late at the present time, it becomes difficult. Hard money lenders will certainly offer solutions but you will likely need at least 30% equity in your home to refinance with late payments of 30, 60 or 90-days.
It is feasible to locate lenders willing to approve a refinance mortgage with bad credit. However, the initial step involves understanding which programs are accessible to you based on your current credit score. Some government initiatives have no stipulated minimum credit score requirements, while others establish low minimum thresholds for potential borrowers.
Mortgage Refinancing for Bad Credit from Experienced Lending Companies
If you’re contemplating mortgage refinancing with unfavorable credit, begin by checking your credit score to ascertain your standing. A credit score ranging from 500 to 600 is categorized as poor, and scores within the range of 600 to 659 are regarded as fair. Once you’re aware of your credit score, you can take measures to enhance your financial situation and apply for an appropriate mortgage or cash out refinance program.
In general, borrowers boasting credit scores of 700 or higher are likely to secure the most favorable refinance rates from lenders. Conversely, those with scores below 620 might encounter challenges in obtaining a lower rate or even meeting the criteria for a refinance mortgage with fair credit.
The most effective approach for enhancing your credit score involves ensuring punctual bill payments, reducing outstanding credit card balances, postponing significant new purchases, and refraining from applying for additional credit, as all of these factors can adversely impact your credit rating.
While there are challenges and obstacles with a bad credit mortgage refinance loan so, with some planning, you still may be able to refinance in a way that makes it worth it.
The 4 Most Common Obstacles to Refinancing with Bad Credit, and What to Do About It:
#1 Interest Rates Could Be Higher
Sure, you have seen those super low teaser rates advertised for 3% or lower to refinance. But you know deep down that the low rates are for the people with credit 740+ right?
Someone with a credit score under 700 or even 600 is not going to come close to qualifying for such a low rate. Still, you might be able to get approved for a bad credit refinance mortgage loan in such a way that you can still save money every month.
The best thing to do to find a better interest rate with low credit scores is to shop around at several different lenders. Try a mortgage broker, a community bank and a credit union and see who offers the best rates for your credit score with aggressive programs to refinance home loans with a poor credit history. Getting sound advice to refinance with bad credit is essential because so many banks and lenders do not take risks when it comes to credit scores. Sometimes you need to think outside of the box and consider the options available with subprime mortgage lenders.
If you are worried about the hard inquiries on your credit report, remember: If you have several mortgage inquiries in 30 days, it only counts as one inquiry, so go ahead and have several lenders run your credit. It won’t hurt. Whether you need a cash out refinance or an equity loan with bad credit, the new guidelines are more forgiving for credit standards and rates couldn’t get much more affordable than they are today.
#2 Lack of Home Equity
If you do not have a lot of equity in your home, some lenders may not want to refinance your home. If you do not have any equity or if you are underwater, it is very difficult to refinance bad credit loans. You should check out the government run HARP program that was set up for those who owe more than their home is worth.
If you have a small amount of equity in the property, you will need to shop around again to find a lender who is willing to loan on the property. If you cannot find a lender to offer bad credit refinancing, experts advise just paying down the mortgage more so you can refinance later.
Also, the good news is that the housing market is looking bright going into 2024, so there is a decent chance that home prices will appreciate around the country.
#3 Low Credit Score
Obviously, if you have bad credit, your credit score is lower than it should be. But you still may be able to secure a bad credit refinance on your home sooner than you think.
Not all low credit scores are created equal you know. If your credit score being low is due to a job loss and a few missed payments, you can clean up your credit relatively quickly. Make certain that you have no late payments on anything that hits your credit report for at least a year. This will include mortgage, car loans, credit cards, and some utility payments. Seeking an affordable mortgage refinance with bad credit is worth the time and effort.
If you had a foreclosure or bankruptcy, you may need to wait a couple of years to do the refinance. But as always, these days, it will pay you dividends to shop around. You never know when you can find a lender who will do your loan with a low credit score. Applying for a refinance mortgage with poor credit doesn’t have to be difficult if you are working the right broker or lender.
If you have a mortgage insured by the FHA, which is backed by the US government, you may be in luck. Doing the streamline program can be a FHA loan with bad credit scores and can be a very easy way for you to do a refinance, and there is usually no credit check or income check either. Read the updated minimum credit score requirements.
You also can use your previous appraisal for the refinance, so if the value of the home has cratered, you still may be able to do the refinance. Not a bad deal, right? If you do have equity but your credit score is below 550, then consider researching hard money lenders for bad credit.
#4 Job Loss
Losing a job will usually cause a hit to your income, and this can complicate being able to refinance. But again, if you have a FHA-mortgage loan, it usually is not a problem. FHA and the US government will not check your current employment, so you still might be able to qualify.
If you have a conventional loan, you will need to get that income replaced in many cases to be able to qualify for the refinance. But there are now some conventional loans that allow you to use the income of other people in your home to qualify for the loan! Ask the lenders you are shopping with if they have access to these kind of loans that enable you to refinance with bad credit scores.
For example, if you have a 20 year old son who makes money each month in a regular job, you may be able to use that income to qualify for the home refinance loan.
Recapping the Solutions to Secure for a Refinance Mortgage with Bad Credit Scores
Refinancing your mortgage is a fantastic financial tool in many cases to help you to save on your monthly expenses. There are of course some challenges to refinancing when you have bad credit scores, but there are more flexible loan standards today and more loan options available. By following some of the above advice, you may be able to refinance even if your credit score is lower than you like.
Mortgage refinancing stands as a viable method to enhance your financial standing, contingent on your ability to identify lenders that offer refinance loans for people with poor credit. The leading home refinancing companies are characterized by their competitive interest rates, streamlined application procedures, and an array of loan alternatives. Nevertheless, it’s prudent to explore additional lenders when in search of the ideal home refinance company that aligns with your requirements. We believe that commencing your exploration with trusted mortgage lenders represent an excellent place to start. Consider an equity loan as well, but make sure you are talking to a bad credit lender. What are the differences between a home equity loan and a cash out refinance?
Take note of new programs with more flexibility in credit standards that help more an more people secure a home refinance with poor credit.
If you want to get an instant bump to your credit score, try to become an authorized user on a trusted person’s credit card. If they pay their card reliably and have a high credit line, this will help you to raise your score quickly. Discover cards, for example, allow authorized users and they do take your SS#. So, it will help to raise your score quickly, as long as that person has good credit themselves and pays the card on time.
There are thousands of mortgage lenders in the United States and not that many of them focus on non-prime mortgages and refinance loans for people with low credit scores. This makes it essential that you speak with capable lending companies that have experience taking risks with programs that enable borrowers to refinance a mortgage with bad credit scores, past bankruptcies, foreclosures and late payments.