Whether you want to lower your monthly payment, change your mortgage terms or use equity from your home to pay off debt, refinancing is an option. But there are many factors to consider when it comes to taking out a loan for bad credit. The best way to start is to make sure you understand your options and what you can expect.
First, you’ll need to determine what type of loan you qualify for. This may include a conventional mortgage, an FHA loan, or an FHA Streamline Refinance. You’ll also need to find a lender. A conventional lender will typically require at least 620 credit score, while an FHA lender will charge higher interest rates.
Depending on your credit history, you’ll want to work on boosting your credit before you begin the refinancing process. Increasing your credit score can be done by paying down your balances, putting bill payments on autopay, and reducing your credit card balances.
Another option is to refinance to a fixed rate, which will keep your interest rate stable and minimize the risk of interest spikes. However, there are certain downsides to this option. For example, you’ll have to pay closing costs and fees that can offset the savings. It’s important to be prepared to wait at least two years before you can switch to a fixed-rate loan.
If you’re interested in refinancing your mortgage for bad credit, it’s a good idea to get an estimate of your current home’s value. There are online tools that can help you calculate the value of your property. In addition, you can speak to your current mortgage company to see if they can refinance your loan.
Lenders have begun to ratchet up the standards for people with poor credit. Before you apply for a loan, you’ll need to provide all of your financial information. To help ensure you get approved, you can take advantage of a lender’s free credit score improvement program. Additionally, you can ask for a co-signer. Having a co-signer will increase your chances of getting a loan.
Getting a rate lock before you begin the application process is another important step. Several lenders can offer discounted terms, but you’ll need to confirm this. Using a broker can be a great way to get the ball rolling, as they can work with several different lenders.
Your mortgage lender will want to make sure you have a steady income. Ideally, your debt-to-income ratio will not exceed three-sixths of your monthly income. In some cases, this limit will be as high as fifty percent. If this is the case, you will likely have trouble qualifying for a refinance.
Some lenders will allow you to refinance even with a low credit score. These programs are often government-backed, which makes them more appealing. They also tend to be easier to obtain. Also, they will not be as strict on qualification requirements as traditional lenders.
Once you’ve decided on a mortgage lender, you’ll need to fill out the application and submit your supporting documents. Lenders will pull your credit history from the three main credit bureaus.