If your credit is less than stellar, you probably already know that you will have a difficult time getting the best interest rates on a mortgage refinance. Here are a few things you should know about applying for bad credit refinancing.
First, your interest rates will typically be much higher than a person with a credit score of 680 or above. However, you should shop around and see what is available to you; depending on the current interest rate, you might be able to find some type of financing with a better rate than what you currently have. Investigate several lenders for the best rate. If you are a member of a credit union or can qualify to become one, be sure to check their rates because they tend to have better options for people looking for bad credit refinancing.
Secondly, check your current mortgage and make sure that you have no pre-payment penalties associated with refinancing.
Third, be sure you know what your credit score and Debt to Income Ratio (DTI) is before you go shopping for a loan. This will be helpful in presenting the best picture of your credit history to potential lenders.
The good news is that it is not impossible to refinance your home mortgage with bad credit. In fact, being a homeowner may actually help to raise your credit score from where it was before you purchased the property. Refinancing is a form of secured debt against your house, and if you are refinancing to consolidate some of your other outstanding loans, this may be in your favor. Even if you have other defaults on your record, refinancing to consolidate and pay that debt proves to lenders that you are dealing with your situation and know how to handle money.
Also, refinancing can be a way to consolidate your higher-interest credit cards, loans, and any other outstanding debts that you may have at a lower rate which will save you a substantial amount in interest and allowing you to make one payment a month instead of several.
