With rates at incredible lows, Americans across the country are refinancing their mortgage. But if you have poor credit, you may be wondering if it's possible.
Refinancing with a low credit score isn't the ideal position, but it is possible. Here's everything you need to know about refinancing into a lower rate mortgage while having bad credit.
But first, why bother refinancing in the first place?
Refinancing saves you money because you end up paying less interest over the life of the loan. That can also translate to lower monthly payment, but if nothing else, it means that more of your payment will go to the principal than the lender.
A handsome prospect for anyone! But for those with less-than-ideal credit, refinancing at a fair interest rate can be difficult.
Review: How Your Credit History Impacts Refinancing
Lenders use your credit score to guess the likelihood of repaying the loan based on your previous habits of repayment.
People with high debt or late payments appear "high risk" to lenders, thus, may disqualify from getting a loan.
If your score is preventing you from refinancing, here are some tips to help improve your chances:
Raise Your Score
Have assets on hand
Work on building a savings to demonstrate that you have the means to repay the loan.
Get a co-signer
Add someone with a higher credit score to co-sign the loan. This assures that the loan will be paid because a person with good credit is also responsible for the loan.
Do an FHA Streamline Refinance
An FHA Streamline Refinance is a program for people who have an FHA loan. Unlike a traditional refi, an FHA Streamline Refi allows refinancing without the need to verify income or assets. It also doesn't require a minimum credit score.
Consider Alternatives to Traditional Refinancing
The Home Affordable Modification Program (HAMP) helps homeowners pay down their mortgages and foreclosure. It works by reducing monthly payments to 31% of their pre-tax monthly income. Banks that offer loans owned by Fannie Mae and Freddie Mac are required to participate in the program. However, some lenders do it voluntarily.
The Home Affordable Refinance Program (HARP) is yet another program to consider. Homeowners current on their mortgage payments and whose property value has gone down may qualify for HARP program.
Rates are at record lows, so we encourage you to explore the possibilities, and don't assume that your low credit will stop you. Contact us today and get definitive answers on refinancing.