5 Tips to Refinancing a Mortgage with Bad Credit
Refinancing a mortgage with bad credit can be tricky, but with a little research and preparation, it can be done. Here are a few tips for making your application more attractive to lenders.
Decide How Much Interest You're Willing to Pay
There are borrowing fees, closing costs, and other expenses associated with refinancing a mortgage with bad credit, so you'll want to be sure that your monthly payment suits your budget. A general rule of thumb is to only refinance if you can reduce your current interest rate by at least 50 percent.
Gather the Necessary Documents
Refinancing mortgage with bad credit can be a challenge, as most prime lenders will consider your income and credit score before any other factors. You can, however, improve your chances of being approved by submitting an attractive application. This means ensuring that you've gathered all necessary financial documents (tax returns, pay stubs, etc.) and any other documentation that can support your application (such as a letter of employment).
Understand the Application Process
The application process for refinancing mortgage with bad credit will be different than applying for a traditional loan. Not only are interest rates generally higher, but the steps involved in refinancing mortgage with bad credit can also be complicated. Ask your mortgage broker what you should expect when applying for a mortgage refinance.
Find Out How Much Equity You Need
The amount of equity required to refinance varies from lender to lender, so you'll want to do some research before applying. Few lenders will approve refinancing mortgage with bad credit if there is more owing on the mortgage than the property is worth.
Consider a Government-Insured Loan
Loans that are insured by the government require lower down payments and less equity in the property. This can make refinancing mortgage with bad credit easier. If you're unable to get approved by a prime lender, consider applying for a government-backed loan.
While the above tips won't guarantee approval, they can significantly improve your chances of being approved for a refinance. If you're considering a refinance but have less-than-stellar credit, we can help. Contact us for more information about refinancing mortgage with bad credit.