Refinancing a house allows you to replace your current loan and enjoy lower rates.
But it can be difficult if you have bad credit because lenders can consider you high risk. The trick is to find a refinancing option that will work to your advantage. Here are a few tips on house refinance with bad credit.
Improve Credit Score
Work on your credit score by making timely bill payments, reducing your credit card balances, and clearing errors on your credit report. An improved credit score makes it easier to get a refinancing loan with better rates in spite of your bad credit.
Compare Refinancing Options
Contact several mortgage lenders and compare the interest rates they are offering. Some lenders focus on homeowners with poor credit. Get as many quotes as possible and find out the kinds of loans available. You also need to ask about additional refinancing charges such as closing costs. This will help you determine if the refinancing option is suitable for your situation.
Getting a cosigner can make it easy for you to get a refinancing loan with a higher interest rate. Identify a cosigner with a better credit score. The consigner will be responsible for your loan but they will not own your home.
Find Government Insured Refinance Loans
This can work well for homeowners with inadequate home equity. Lenders who offer government-backed refinancing are more like to accept people with bad credit because the loans are insured by the Department of Housing and Urban Development.
Get Federal Housing Administration Streamline Refinance
This is a great option if you already have a Federal Housing Administration (FHA) mortgage. It allows you to refinance your house without an appraisal, credit check or the need to submit occupation or income documentation. But you have to update your mortgage payments first. You will also have to provide tangible reasons for seeking refinance. Some of the reasons you can give include the need to reduce monthly payments or moving to a fixed-rate mortgage.
Take time to improve your credit score before you approach a lender for refinancing. It can take up to 12 months to increase your score. House refinance with bad credit is still a good option even if you do not get the lowest rate. Refinancing is worth it if you reduce the rate by at least one percentage. Consult a professional broker to help you understand your options and identify the best lenders in the market.