People ask us all the time, how to get a mortgage refinance with bad credit scores. 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.
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. Below are the most common obstacles to refinancing with bad credit, and what to do about it:
#1 Interest Rates Will 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 a home equity loan with bad credit, the new guidelines are more forgiving for credit standards and rates couldn’t get much more affordable then they are today.
#2 Lack of 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 2017, 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.
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 low 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.
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 loan.
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.
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.
Frequently Asked Refi-Questions:
Can I refinance with a credit score below 600? – Yes, if you have the compensating factors that the lender, broker or bank requires for refinancing with bad credit 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.
8 Reasons You Should Still Refinance Your Mortgage in 2018
Did you not refinance your mortgage yet? If not, you should know that the days of 3.5% mortgages are probably behind us. However, rates are still historically low, so you should take a strong look at refinancing your mortgage in 2017.
Here are some good reasons why you should strongly consider a home refinance with bad credit soon:
New Programs with Eased Credit Requirements
There is some good news for people that have had difficulty qualifying to mortgage refinance with bad credit. Many lenders have announced increased flexibility to refinance with bad credit with programs backed by FHA, VA, Fannie and Freddie. Even subprime lending institutions have begun advertising new programs for people with damaged credit for people that have 580 credit scores. If you have a credit score below 600 it’s worth taking a look because it is not always easy to refinance with bad credit.
Rates for Mortgage Refinancing Are Going Up
We have been hearing for several years that rates would start to climb, and little happened. But by the end of 2016, rates did indeed start to ratchet higher. The Federal Reserve finally raised its rate and this led to mortgage rates to go up a bit.
As of mid 2016, interest rates were often under 3.5%. Now, rates are in the low 4’s. Some experts think we will hit 4.5% by the end of 2017, and even a few think we could see 6% rates in 2019.
The conventional wisdom is that you should refinance if you are paying 1% or more than whatever the current rate is. If that is you, we would advise you to talk to your lender about refinancing. By locking in a rate that is 1% lower than what you pay now, you can cut your monthly expenses significantly, perhaps by hundreds of dollars. According to Freddie Mac, rates on a home refinance with bad credit remain relatively low.
Home Prices Are Going Up
Mortgage rates going up will often encourage buyers who were sitting on the sidelines back into the market. If many of these potential buyers hit the market at once, the housing inventory shrinks and prices go up. This can lead to a higher price for your home. That’s great news for you.
If your home goes up in value, you can often get better loan terms because the appraised value is higher and your mortgage balance lower. Also, if you have more than 20% equity, you often can get rid of the private mortgage insurance on your loan. That can easily cost you an extra $100 or $200 per month.
A higher home value also may give you the option of pulling out cash to renovate your home or pay off debt.
Rising Prices May Tail Off
Experts report that home prices increased 5% in 2016, but they are expected to go up only 3% or so in 2017. So, you may not want to wait too long before you refinance your home because one never knows when they may start falling.
You May Be Earning More
Reports from the US Labor Department indicate that job hiring is strong and wages have been rising for the last year. This means you may be earning more than you were a year ago, so you could be a better candidate for mortgage refinancing.
You also may use some of your extra income to pay down debt, which increases your credit score, and can improve your mortgage interest rate.
More Mortgage Credit Is Available for Home Refinancing
There has been fairly bright economic news in recent months as hiring is increasing and people are making more money. Home prices have been going higher, too. This means that more mortgage credit is available to homeowners than in the past.
People all over this great nation want to know how to get a refinance mortgage with bad credit: If you are excited about finding a source for a mortgage refinance with bad credit scores than keep reading this article, because there are new opportunities available to more people just like you.
In December 2016, the Mortgage Credit Availability Index went up .6%. This suggests that the credit markets are loosening and it will be easier for people to get a refinance or a new loan.
Generally, the index suggests that credit to buy or refinance a home is 7% more available than it was in 2016. Thus, poor credit mortgage lenders are more likely to take on higher risk, especially with interest rates higher.
You Are Staying In Your Home
Whether you should refinance or not also depends upon how long you plan to live in your house. Are you thinking of moving within a year or two? You may not benefit sufficiently with the refinance if you are going to sell within two years. Remember that bad credit refinancing costs money in terms of closing costs and fees. It can take a few years of lower mortgage payments to make up for what it costs to take out a new mortgage.
But if you think you are staying in your home for years to come, you could be a good candidate for a home refinance loan. Read, How to Get a Home Loan with Poor Credit.
You Have High Interest Debt
If you have a lot of credit card debt, you may want to consider refinancing your mortgage now and possibly pulling out cash. This can help you to pay down that high interest debt with much lower interest debt.
A major benefit of paying off your credit card debt is that you can usually write off the mortgage interest that you pay on your taxes. That can drop your tax bill quite a bit come April 15.
There are many good reasons to refinance your mortgage in 2017. Bad credit refinance mortgage rates are not as low as they ever were, but they are still low. We do not expect these low rates to last for very long, so we advise you to get a home refinance with bad credit as soon as you can.