Did you obtain your mortgage with a bad credit score? What type of mortgage did you get? Before the real estate bubble burst, everyone was able to easily get a mortgage as people thought that it was every “red-blooded Americans” right to own a home. However, during these tough economic times, many people who were struggling with their payments before the recession are on the verge of foreclosing or going bankrupt. So what can you do? Have you considered refinancing your home? If you are one of those people who are struggling with their payments, perhaps a bad credit mortgage refinance is the right thing for you to do. If you are stuck in an adjusted rate mortgage, the time might be right to consider finding a better rate. It’s definitely a buyer’s market and you could save a considerable amount of money, if you do decide to refinance.

Options are available for those that have a bad credit home loan and want to refinance. You are considered to have bad credit and will categorize as a “sub-prime” loan if you have a FICO score that is below 680-650. Of course, if you have an excellent to good credit score, it will be much easier for you to refinance and you will have more refinancing options. However, there is still hope for those who have damaged credit scores but would like to still refinance. The first step that you want to do is to eliminate any higher interest debts. A great way to eliminate higher interest debt, such as credit card debt, is to borrow from your equity to pay off credit cards. The ability to take away from your equity to pay off debt is called a “cash-out”. Refinancing with cash out is a good way to pay off debt because you have the flexibility to do what you want with the money.  Instead of having to pay off a certain type of debt, you can use the money to pay off any other high interest debt that you have. Another way to use the cash out money is to use your loan to pay for refinancing costs to get into a lower interest rate mortgage.  Another option to pay off higher interest debt is by contacting a nonprofit debt consolidation company. 

First, you need to consider all options and weigh the pros and cons of refinancing. Refinancing for some, could actually cost you more and would defeat the purpose of going through the hassle in the first place. The worse your credit score is, the higher your interest rate is going to be. The best way to determine whether refinancing your mortgage is the best option is to get interest quotes from a few online competitors to see if it’s worth the work. Even though interest rates have gone down, it doesn’t necessarily mean that you will get the best interest rate, the best refinancing rates are saved for those with excellent FICO scores. Authoritative websites state that on average, people with a FICO credit score of 520 will have to pay about 4 ¼ more percentage points than a person with a FICO score of 720.

How much equity do you have in your home? If you have a substantial amount of equity and have bad credit, you might have a better chance of getting a favorable rate than those with bad credit and no equity. If you have a good loan to value ratio, you will also be able to receive a favorable rate. Basically, the more equity you have in your home and the less you borrow, the better the outcome. The bottom line is that you can refinance, but it will be harder to find a lender that can accommodate this option and you will have to pay a higher interest rate than those with a better credit score.

A quick and easy way to refinance is by doing an interest only mortgage refinance.  Remember that you are only paying the interest on the mortgage and none of the principal and that you will still owe the same amount of principal on the balance down the road.  Interest only refinancing options for those who want to save some money by paying off just the interest on their mortgage while increasing the value of their home through appreciation and other external factors.  After the interest only period is up (usually between 5-15 years), you will have to start paying back the principal as well as the interest and will you can expect your mortgage payments to increase.  These types of refinancing mortgages are kind of risky and should only be used if you know that your house will increase in value or that your financial situation will become better.

The best thing to do to see what is available is by going to a website and getting a quick and dirty quote. Let people work for you. Instead of you doing all the work, let the competition provide a quote and work with you. A good website to use is lowermybills.com. This website is owned by Experian and is trusted website for credit refinancing. All you will need to do is fill out a short form and allow them to do the rest of the work. The best part of this service is that you do not have to deal with the lending companies, the website deals with the companies and is the middleman between you and them. The more quotes and competition you contact, the better chance of getting the best interest rate, so it’s recommended to try as many websites as possible. Remember that a small decrease in interest rate can save you thousands of dollars in the future. So why not take the time to see what kind of refinancing options you can get, even with a bad credit score. However, it's best to perform a credit card refinance as credit cards tend to have high interest rates. 

Things to Look for When Refinancing with Bad Credit

First, create an Excel spreadsheet and organize the criteria so you can sort through all the quotes later. Here are some things to consider:

Of course the first criteria you will want to search for is a lower interest rate. Even a small percentage cut can save you a substantial amount of money. Use a spreadsheet to record the company and the quote that they gave you.

Make sure you know the lender’s fee structure and that there are no hidden costs within the loan. Get a lawyer or at the bare minimum read through the contract and addendums. Many mortgage brokers will sneak in hidden costs, which will costs you thousands of dollars. Hiring a real estate attorney to read over the contract could save you a few thousand dollars in the long run.

Make sure your lender is responsive to your questions and requests. Flaky lenders who do not answer your questions promptly can mean trouble later on when an important matter arises. Pick a trusted and responsive lender and make sure they have the credentials to get you the best rate possible.