Monday, November 25, 2013
Friday, November 8, 2013
5 ways to refinance with bad credit
Mortgage lenders, whether or not they offer bad-credit mortgage refinancing, review your credit, your home equity, and your debt-to-income ratio to determine whether they can approve a new home loan. While you likely know if you have credit problems or debt problems, you need to start the home refinance process by checking with a lender to find out your credit score.
Lenders have varied standards of risk tolerance; so while one lender may turn you down, another may be willing to offer a bad credit refinance.
Try these options for bad-credit refinancing:
Ask about FHA refinancing. One of the few options available for borrowers with a credit score in the 620 to 640 range is FHA refinancing. FHA loans, which are government-insured, are designed to help borrowers with a lower income or with some credit challenges. Lenders are sometimes more lenient with these loans because they know government funds will kick in if they must foreclose on the loan. While FHA rules say you can have a credit score as low as 580, few lenders will approve a loan for borrowers with a credit score under 620. Be aware that FHA loans require mortgage insurance which could make your monthly payments higher than you want.
Pay down some debt. If you have some cash available, you should pay off some of your credit card debt. Not only will this boost your credit score, but it will also improve your debt-to-income ratio since your monthly credit obligations will be lower.
Improve your credit. There are no legitimate quick fixes for your credit; but if you begin paying your bills on time and reducing your debt, you can eventually fix your credit problems.
Increase your home equity. Home values depend on a variety of factors; but if you have some cash that you can use to pay down your mortgage balance, you will look like a better risk to a lender. Paying off your credit card debt should be your first priority; but if you have done that and have a lingering bad credit score, you can improve your chances of a loan approval if your mortgage balance is lower.
Increase your income. It's not always easy; but if you can bring in extra money with a second job or overtime, you can use this cash to pay off your debt or some of your mortgage.
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