Refinancing with Bad Credit

Refinancing with bad credit - Late or partial payments, outstanding debts, a recent divorce, illness, unexpected expenses, and unemployment can all have an adverse affect on your credit rating.

If you'd like to refinance your current mortgage but are afraid you'll be disqualified due to poor credit, don't give up hope. Even if your credit is less than perfect or if you've been discharged from a Chapter 7 or 13 bankruptcy, a bad credit refinancing specialist can help you get on the path toward a successful refinance.

Types of Bad Credit Refinancing Specialists

For those interested in refinancing with bad credit, there are two options to explore:

  • Bad Credit Mortgage Lender. This financial professional can assist you with obtaining a home loan refinance that would otherwise be declined by a traditional bank, lending institution, or credit union.

  • Bad Credit Mortgage Broker. As with traditional mortgage brokers, a bad credit mortgage broker acts as a middle man, helping those with poor credit scores find the best mortgage lender to facilitate the refinance.

What to Expect with a Bad Credit Refinance

In this scenario, you'll most likely pay a higher interest rate and substantially higher closing fees than someone with a better credit score. In addition, it's not uncommon for bad credit refinance loans to carry pre-penalty fees that last anywhere from 6 months to 3 years-so, even if your credit situation improves and you qualify for a traditional refinance during your pre-penalty time frame, you'll have to pay a potentially hefty fee before you'll be eligible to refinance.

Whether you're working with a bad credit mortgage broker or directly with a lender, you'll need to have cash on hand for a down payment. To the lender, a loan with a high percentage down payment poses less of a risk, so your up-front payment will be higher if you have a low credit score. Here's a typical breakdown of down payments required for a bad credit refinance:

  • 535-550, 15-20% down payment

  • 500-535, 20-25% down payment

A minimum credit score of 500 is generally required for all borrowers.

In spite of the higher interest rates, associated fees, and pre-penalty obligations, refinancing still has the potential to save you thousands of dollars. As with any loan, be sure to shop around for rates, and evaluate fees and terms closely.

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