subject: How To Refinance Your Home Mortgage With Bad Credit [print this page] As most of us know only too well, our credit score is one of the most important numbers that we have. If you apply for a mortgage or other loan, the lender will access your credit report a report that is based on statistics supplied by the three main credit reporting agencies, Equifax, Experian and TransUnion. A bad credit score can make it difficult to take out a car loan or credit card at competitive interest rates; it can also make it difficult to refinance your home mortgage. In general, the lower your credit score, the more you will have to pay to refinance.
In fact, a good credit score is so important, that if you are thinking of refinancing your mortgage, it may pay you to wait and build up your credit score before applying. A poor credit score can make a big difference not only to the amount of loan for which you will qualify, but also the amount of your monthly mortgage payment. This can make a huge difference - a low credit score of below 630 can potentially mean that your monthly payment amount is between $50 and $250 higher. If your credit score is below 620, the only way to refinance may be to have a co-signer on the loan.
There are some steps you can take to improve your credit score before refinancing your mortgage loan. Firstly, always check your credit report for accuracy - an estimated 25% of credit reports contain serious errors, which can affect your score and the interest rate which you are offered. If possible, consider delaying a major purchase such as a new car until after you have refinanced your loan, so it doesnt lower your credit score. And try to pay off as much debt as you possibly can before refinancing this helps to lower your debt to income ratio and raise your credit score. Consider paying off some credit cards and keeping just one open.
But supposing you really want to refinance and despite your best efforts, your credit score is still low? The good news is that you can still refinance its easier to refinance with poor credit than it is to take out a new mortgage although you should expect to be offered higher rates. Some lenders specialize in refinances for borrowers with poor credit and you should also consider refinancing through the FHA; these loans are designed for homeowners who are genuinely struggling to make their monthly payment and who may be in danger of being foreclosed on.
If your credit score is bad because you were forced to declare bankruptcy, you should wait at least two years before trying to refinance; during that time try to build up your credit score as best you can. You probably arent going to be approved to refinance your mortgage immediately after a bankruptcy or repossession. However, if your poor credit is caused by having too much credit card debt or the occasional missed or late bill payment, most lenders tend to be more lenient. Again, you may have to shop around to find a more competitive interest rate.
If you are trying to refinance and are being offered a high interest rate because of your poor credit score, one solution is to buy more points. You have the option of paying an additional point, each of which costs $1,000 and each point you buy will lower the interest rate by one percentage point. Its an effective way to lower the interest rate, regardless of your credit score; however, you will also of course need to have more money saved up to achieve this. Regardless of your credit score, you should also start to save up money to cover the various fees and charges involved in refinancing.
If you cannot refinance due to poor credit, there are some other options available to you. You can pay off your existing mortgage more quickly by regularly paying a higher amount towards the principal balance make sure you are paying towards the principal and not the interest. And depending on your situation, you may also be eligible for a loan modification program, which can offer a lower monthly payment and lower interest rate without the costs involved in refinancing your loan.
Your credit score is important, but so is home ownership and your financial future A. poor credit score may make it more difficult to refinance, but not impossible. Do some research, take the time to explore your options and make sure that you can comfortably afford the new amount of the monthly payment.
by: Mortgab1
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