In a perfect world everyone would have a 720 credit score and a trouble free credit history. Unfortunately we live in reality and the truth is that many home owners have less then perfect credit scores. While bad credit can make refinancing a home loan difficult getting a mortgage with bad credit is actually easier then you think.
The first thing you must determine is how bad your credit actually is. Knowing your credit score will help determine your loan options and save you the headache of having to apply for a mortgage only to be turned down.
Bad Credit Refinance Options
If your score is 600 or higher then you more then likely will be able to secure a good low fixed rate FHA mortgage. Keep in mind that FHA requires your last 12 months mortgage payments to have been paid on time and your debt to income ratios need to be at or around 42%. FHA will refinance up to 97% of the value of your home so it works well for people with little to no equity in their primary residence.
If your credit score is under 600 and not below 500 you really have no other option but to use a sub prime lender. although they have gotten a lot of bad press lately sub prime loans can help people refinance their homes when other lenders turn them away. However never under any circumstance take a sub prime adjustable mortgage and always opt for the fixed rate. Sub prime loans allow you to refinance with mortgage lates, open collections and many other derogatory credit situations.
However if your credit score is under 500 you have some serious work to do because even sub prime lenders will not lend to borrowers with credit scores under 500. At this credit score level you have two options. You can either invest some time and money into credit repair to improve your scores to the level where you can secure sub prime financing. The other option is for you to use a hard money lender. Hard money lenders typically have very high interest rates and loan fees and should only be used as a last resort. They also only typically lend up to 70% of your homes value so they may not be able to help everyone based on those equity requirements.
By: Darin Sewell
Posts Tagged ‘Adjustable Mortgage’
Bad Credit House Loans – Why Refinancing is a Challenge For Borrowers
November 12th, 2009
In todays tough financial times many homeowners have slipped into having bad credit. With the rise in gas, food and everything else many people are finding it hard to pay bills on time. Combine this with the large amount of adjustable mortgages getting ready to increase and the drop in property values many people are heading for disaster
Although just a few years ago bad credit house loans were readily available through lenders that offered a huge variety of programs that let people finance 100% of their homes value with low credit scores, recent bankruptcies and even without actually proving their incomes. Many of these sub prime loans were also written with very inflated appraised values.
Today though is a different story for people looking to refinance with bad credit. Most of the sub prime lenders have all but disappeared and the ones that are left no longer offer the aggressive programs that let these borrowers buy their homes in the first place. To make matters worse lenders are frequently reducing the homes appraised values to protect themselves in the event a borrower defaults.
The FHA has stepped in to try and help these borrowers but even the credit score requirements for an FHA loan have increased to the 580-600 range.
In addition to higher credit score FHA requires the last 12 months mortgage payments to be paid on time. While an FHA loan may help some home owners it does not help anyone with a lower credit score and possibly a one or a few missed 30 day late payments.
If you are trying to refinance to save your home or reduce the burden of an adjustable mortgage your best bet is to call you lender and see if they will either give you a longer fixed rate period on your adjustable loan or modify your mortgage to a fixed rate. With todays tight lending market and reduced property values this may be the best option for bad credit home owners who are unable to refinance.
By: Darin Sewell