DEBT MANAGEMENT » Get out of Debt

With very few exceptions, one of the first things a potential lender will ask you for when you are apply for a home loan is your permission to run a credit check. If you have some concerns about your credit history, you might want to think about what some people call "no credit check mortgages." There are lenders that specialize in helping people with bad credit get into their own homes and acquire financing at a reasonable interest rate.

Unless you are applying for a VA Home Loan Refinance, pretty much any legitimate lender is going to check your credit. However, your credit score is not the only consideration lenders will look at when you apply for a loan, and you should not think of it as the only determining factor. Some loan products are designed for people with a less than optimum, or sub prime, credit profile. Lenders who specialize in these types of loan products will weigh in other factors when considering your loan application. If you can provide verification of income (through W-2s, pay-stubs, and past years tax returns), and if you can provide personal references and documentation of your ability to meet your financial obligations, such as rent payments or deposit receipts, then you may be able to qualify for one of these types of loans.

Also, the fact that you are already a homeowner will weigh substantially in your favor when you approach a lender to refinance. As long as your Loan to Value Ratio (LTV) is high, the bank will take that into account when determining the risk of lending you money. It is likely that they will also look at the timeliness of the payments you have been making on your existing mortgage.

Your credit score is based on an average of the scores from the three major credit bureaus (TransUnion, Equifax, and Experian), and generally the middle score is the one used to determine your rating. When looking for a no credit check mortgage, shop around to as many lenders as you can and talk to loan officers to see what they recommend to improve your score and overall risk profile. You may not qualify for the same loan that a borrower with excellent credit could acquire, but many lenders will work with you to help you get a mortgage product that works for you.

If you have filed a Chapter 13 or Chapter 7 bankruptcy, the bad news is that this filing will remain on your record for seven to ten years. However, if you are a homeowner, the good news is that this does not necessarily mean you will be unable to refinance your mortgage for that entire time. It is possible to refinance your mortgage within a year or two after declaring bankruptcy. The offers will likely get better as you get further and further away from your bankruptcy, but there are other factors which will improve your chances of getting your refinancing loan approved, and getting the best interest rate.

One factor which lenders will look at when you are refinancing your home is the amount of equity you have in your home. If the purpose of your refinance is to get a better interest rate, and you are not attempting to access your home equity with a cash-out refinance, lenders will tend to look upon you as a better risk. They will see the bankruptcy in your past, but they will also be looking at the Loan to Value Ratio of your house.

Loan to Value Ratio

The Loan to Value Ratio (LTV) refers to the difference between the market value of your home and the amount of money you still owe on your mortgage. For example, if your home has a market value of $350,000 and you owe $200,000 on your mortgage, you have $150,000 in equity in your home and your loan to value ratio is high. What this means is that in the event that you default on your loan, the lender is very likely to get their value back on the property, because the property is valued well above what is owed on the mortgage.

Rebuild Your Credit

It is also advisable to do what you can to rebuild your credit before shopping for a refinancing loan, just as you would when applying for a primary mortgage. If you pay down your debt, establish a history of on-time payments, and build your income - all of these measures will help to improve your credit score and help you qualify for the best interest rates.

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