subject: Refinance A Mortgage With A Bad Credit Score - 3 Things To Do Before Applying For A Loan [print this page] Refinance A Mortgage With A Bad Credit Score - 3 Things To Do Before Applying For A Loan
To refinance a mortgage, you will want to make sure that you can qualify for more favorable loan terms than you have now. Otherwise, it is not worth paying the closing costs - nor is it even worth your time and trouble - to refinance.
More favorable loan terms can include one or more of the following: having a better interest rate, the ability to cash out home equity, and the chance to shorten or extend the repayment period.
Even if you believe that you can qualify for these favorable terms, it may be a moot point if your credit score is holding you back. Banks and other mortgage lending institutions focus heavily on the credit score as the primary consideration when deciding whether to extend someone a mortgage loan.
If you want to refinance a mortgage with a bad credit score, here are 3 things to do before applying for a loan:
1. Make sure that your home equity is at least 20% of the amount you owe on your existing mortgage:
Some banks will allow certain borrowers to do a loan whereby the loan amount is equal to 100% of the value of their home. However, if you have a bad credit score, most lenders will at best allow you to borrow 80% of the home value.
The way to tell whether you have enough equity in your home to refinance is to find out two things: a. what your home is worth now, and a. how much you owe on your mortgage. If the difference between these two numbers is 20% or greater than your home's value, you have a good chance of qualifying for a loan.
2. Study your credit reports well and understand every significant positive or negative line item:
In order to qualify for a loan, you will most likely want to work with bad credit home mortgage refinance lenders. These lenders have found ways to work with individuals who have a bad credit score because the lenders are skilled at analyzing the borrower's credit-worthiness using additional information from the credit report.
So, before applying for loans, look closely at your credit reports and make notes about any items that stand out that are either favorable or unfavorable to your situation. Be ready to explain either type, if asked.
3. Build yourself a list of at least 5 bad-credit mortgage refinance lenders:
Now, to increase your chances of getting approved with the best-possible refinance interest rate, be sure to build a list of at least 5 bad-credit mortgage refinance lenders. Then, apply to all 5. Hint: never take their first offer. Instead, keep negotiating until they give you their best rate.
Take these 3 things into account as you look for a way to refinance your mortgage even though you have a bad credit score.
