If you’ve been delinquent on your mortgage payments and are unsure if you can qualify for a loan, you should think about refinancing. This may make you eligible for a lower interest rate, or it may help you drop your PMI (principal and interest) and keep your home from losing value.
There are a number of factors that go into refinancing your home, but one of the most important is your credit score. When you’re looking to get a loan, the lender will examine your credit history and determine whether you’re a good risk or not. A bad credit score will increase your interest rate, and make the process more expensive.
The best way to start the process is to shop around and get quotes from a few lenders. Make sure you ask about all the costs, including closing fees. Ask about the best mortgage loan to fit your needs and budget.
You can also check out government-backed programs that offer refinancing opportunities for those with substandard credit. These may be more forgiving than conventional loans, but they also come with a number of caveats.
The FICO score, created by Fair Isaac and Company, is a handy tool for understanding what you’re worth as a borrower. For example, a FICO score of 600 is considered a fair score, but a FICO score of 500 is considered subpar. Getting a higher score will allow you to take advantage of the best rates and mortgage programs.
A higher score will also improve your chances of getting approved. Although it’s not the only thing you’ll need to get a loan, you’ll need to prove your good credit with a slew of financial documents and an appraisal of your home.
The best way to qualify for a mortgage is to make sure you have a good credit score and to stay current with your mortgage payments. However, that isn’t always the case. Several reasons can lead to poor credit, including a few missed car payments or a high debt-to-income ratio.
One of the best ways to improve your credit score is to refinance your existing home. You can either do a “cash out” refinance, or you can pay off other financial obligations. Whether you choose to refinance or not, you’ll want to have an emergency fund of three to six months of expenses ready.
Another good idea is to diversify your credit portfolio. That’s because your total debt-to-income ratio will be a factor in your mortgage loan application. By lowering your overall debt load and keeping your credit score above 700, you can be considered for a more competitive loan and a lower rate.
It may seem counterproductive to apply for a new mortgage if you’re already struggling, but the benefits of a lower interest rate and a longer loan term can be well worth the hassle. Especially if your credit isn’t as strong as it once was, you’ll find that a mortgage refinance can be the right move for your situation.
