Many years ago, it would have been tremendously hard for those with bad credit
to obtain a mortgage loan in the first place. However, today there are so many
loan options available and so many ways for lenders to protect themselves that
those with bad credit can not only find a suitable mortgage but can also find
appealing re-financing options as well.
Those with poor credit should carefully think about whether or not re-financing
is ideal for them at the present time but the process is not much different for
them as it is for those with good credit. Those with bad credit who want to
learn more about re-financing should consult a mortgage advisor who specializes
in mortgages for those with bad credit. Additionally the homeowner should
carefully evaluate their credit score and whether or not it has improved.
Finally the homeowner should evaluate their options carefully to ensure they are
making the best possible decision.
Consult a Mortgage Advisor
Consulting with a mortgage advisor is recommended for those with poor credit.
These homeowners may be knowledgeable about the process of re-financing but
their situation warrants consulting with an industry expert. This is important
because a mortgage advisor who specializes in obtaining mortgages and
re-financing for those with bad credit will likely be very knowledgeable about
the types of options available to the homeowners.
When consulting with the mortgage advisor, the homeowners should be absolutely
honest about their financial situation and should supply the expert with all of
the information he needs to assist them in finding an ideal re-financing
agreement. Being completely candid will be very helpful in enabling the mortgage
advisor to assist the homeowner in the best way possible.
Consider Whether or Not Your Credit has Improved
Homeowners with bad credit should carefully consider whether or not their credit
has improved since the original mortgage was secured. Homeowners who have
documented proof of past credit scores can compare these scores to current
values. Each citizen is entitled to one free credit report per year from each of
the major credit reporting agencies. Homeowners can obtain these reports for use
in making comparisons to the previous credit scores. Imperfections on the credit
report such as bankruptcies, delinquent or missed payments and other
transgressions do not remain on the credit report.
These flaws are often wiped from the credit report after a certain period of
time. The amount of time the transgression remains on the report is proportional
to the severity of the offense. For example a bankruptcy will remain on the
credit report for significantly longer than a late payment. In examining the
credit report, homeowners should consider the overall credit score but should
also note whether or not previous offenses are being erased from the credit
report in a timely fashion.
Evaluate Re-Financing Options Carefully
Once a homeowner has tentatively made a decision to re-finance the mortgage, it
is time to start considering the many options that are available to the
homeowner during the process of re-financing. Most homeowners mistakenly believe
one factor of the re-financing process they have no control over is the interest
rate. While this rate is largely dependent on the homeowners credit score, even
those with poor credit have the ability to lower their interest rate by
purchasing point. A point is typically equally to 1% of the total loan amount
and may translate to a ¼ of a percentage point on the interest rate. When
deciding whether or not to purchase points, the homeowner should carefully
consider the amount of time it would take the homeowner to recoup the cost of
purchasing the points. This will help to determine whether or not it is
worthwhile to purchase one or more points when re-financing.
Homeowners will also have options in terms of the type of loan they choose when
re-financing. Common options include fixed rate mortgages, adjustable rate
mortgages (ARMs) and hybrid mortgages. The interest rate remains constant with a
fixed rate mortgage, adjusts with an ARM and is fixed for a period of time and
adjustable for the remainder of the loan period with a hybrid loan.