Finance

Sep 21 2016

5 Tips for Refinancing a Mortgage With Bad Credit – Careers – Finance


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Refinancing your mortgage can save you hundreds of dollars a month and potentially tens of thousands of dollars over the life of a standard 30-year home loan.

If you re nervously watching interest rates rise, and are thinking about refinancing your home, you may have been sitting on the sidelines because you re worried about your credit. While refinancing a mortgage is no doubt tougher to accomplish when your credit is so-so, or even bad, you can nevertheless get a refi done. Here are five tips to help you refinance your home loan, even if you have blemishes on your credit report.

Tip #1: Don t Expect Ultra Low Interest Rates

You ve no doubt seen mortgage advertisements online, in newspapers, or on radio and TV offering homeowners rock-bottom interest rates sometimes as low as 3% to 4%%.

Well, good luck actually getting a loan at those very low rates, despite all those ads.

According to BankRate.com, as of July 29, the average 30-year fixed rate mortgage was 4.38%. So if you were hoping for record low interest rates in the sub-4% range, those days have passed.

Rates have been rising in recent weeks especially after the Federal Reserve Bank announced in July that it would stop buying back bonds, a move that had been keeping interest rates artificially low.

There s another reason, though, that some people shouldn t be fooled into thinking they ll get those teaser rates that lenders often advertise: It s that the very best, low interest rate mortgages are reserved for pristine borrowers.

So if your credit is shaky, you can refinance but just not at the cheapest loan rates available in the marketplace.

Tip #2: You typically need to have equity in your property

In the current environment, most lenders will generally not refinance your existing mortgage if your home is underwater and you owe more on the property than it s worth.

Even if you re not underwater, some banks won t even want to refinance your current mortgage if you only have a little bit of equity in your house.

The reason banks shy away from refinancing properties with little equity is because the new home loan is made based on the current market value of your property.

Without much equity, your loan is seen as riskier and that reduces many lenders willingness to issue you a new mortgage.

Also, the more conservative the bank, the greater the amount of equity they will want you to have. For example: very conservative lenders may want you to have 25% to 30% equity in your home for a refi. In other words, they want your loan-to-value or LTV ratio to be 70% to 75%.

If your credit is shaky, you can refinance… just not at the cheapest loan rates available in the marketplace.


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