Bad Credit Refinance Loans Explained Having bad credit affects your refinance loan in two ways: -the mortgage closing cost fees you pay -the interest rate you get Generally speaking, the lower your credit score is the higher your mortgage refinance rates will be and the higher your mortgage fees will be. Your refinance rate will likely be higher for two reasons: -lenders price their loans according to risk and raise rates as credit scores decrease -lenders or brokers try to provide you with a higher, more profitable rate for them because they think -you have fewer options or don't know as much about the mortgage refinancing process Your mortgage refinance fees are likely to be higher because, again, the loan providers think you have fewer options or won't bother shopping around. Bad Credit Mortgage Refinance Tips The first piece of advice is to shop around. You will see a wide range of rates. Some lenders or brokers will try to fleece you, quoting rates that are sometimes 2%-3% higher than what others are quoting. You can drop them right there. With your credit you can review incorrect items. Check your credit early on, preferably before you even start shopping for a mortgage. This will give you a chance to clean up any errors on your report. You can get your credit report online from many sources, including going directly to the credit bureaus themselves. The credit reports are generally organized into three sections: credit lines that are clean, credit lines you were late on, and credit lines that are now closed. Each account will list how many times the account was late by 30, 60, or 90 days. You may see some credit lines with creditor names you don't recognize. This is usually because these are the names of collectors who have purchased your bad debt. Each credit line has contact information and an account number. You can use these to contact the creditors to fix anything you can. If you successfully resolve your issues with a creditor, you can supply a written letter from them to the credit bureaus to have your credit updated. After you have updated your credit report you are in a position to shop around for your mortgage. Although your credit report may not have changed much you will have eliminated the errors. Every little bit helps. Many lenders have guidelines about how much they will lend to different credit types. For example, one lender may offer 100% cash out financing to people with a credit score over 680, but may lower this gradually to 60% cash out of value to people with credit between 550 and 570. Keep in mind that every single lender has different guidelines. What one lender will not touch another lender will be happy to do. There are many lenders that specialize in the sub-prime (lower credit) borrower. Many mortgage brokers work with these sub-prime lenders, but they may not work with the right ones. You can ask one about their experience in working with sub-prime borrowers. What one mortgage broker or lender will tell you is impossible to do another may find a way to do it. There are all different levels of experience in the mortgage loan business. One critical tool you have is the ability to walk away from a loan. If you are quoted one rate and set of fees and get something very different when you go to sign your loan documents then you should refuse to sign. The ability to walk away will save you from a last-minute jam. Build this time cushion into your refinancing plan. |
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