Remortgage with bad credit
These days, having bad credit score is not necessarily as bad as it should be; the financial companies are business entities too. In fact banks borrow money just like people do, from central banks or customers. In times of relatively low interest rates, financial companies need to make money by originating loans. And, a number of new sub prime lenders have opened up shop in recent years and are specifically in the business of lending to people with bad credit score. They are looking to refinance bad credit accounts and collect massive fees on the backend.
Depending on how poor your credit is, you may have difficulty refinancing into a lower fixed rate than you have now. Interest rates are tied to credit scores and the lower your score, the higher the rate you’re going to pay. And if your poor credit rating is due to missed mortgage payments (by 30 days or more), you likely won’t be able to refinance – a loan modification is probably a more realistic option. However, if your poor credit is due to other factors, such as high levels of credit card debt, and you’re currently paying a high rate on your mortgage, it may be worthwhile to refinance even if you don’t qualify for the lowest rates now available.
It also makes sense to refinance, even if you can’t qualify for the lowest rates, if you have an ARM that’s about to reset to a higher rate or monthly payment. Because interest rates are low right now, it isn’t likely that a regular ARM will reset to a significantly higher rate right now. But if you have an interest-only or option-ARM that’s about to reset, you could be facing dramatically higher payments if you don’t refinance.
Get rates from multiple lenders
The key to refinancing with bad credit – or any time you’re looking for a mortgage, in fact – is to shop around. Different lenders and brokers cater to different parts of the market, and some of them specialize in loans to people with weak credit. But you’ve got to shop around. Obtain your credit score (more on that below) and contact 6-10 lenders and see what sort of terms they offer. You can also contact several mortgage brokers, who can track down the lowest rate and terms for you – but you’ll need to pay a small slice to them as well.
So how much will you have to pay? According to the Fair Isaac Corporation, which developed the FICO credit rating system used by lenders, you can still get a fairly good rate with a score as low as 660 – about 5.5 percent on a 30-year fixed-rate mortgage as of Aug. 14, 2009. Higher scores mean lower rates – saving about two-tenths of a percentage point for each step upward to scores of 680, 700 and 760 or above.
But below 660, rates increase rapidly, by about half a percent for every 20 point drop – to about 6 percent for a score of 640-659, and 6.5 percent for scores of 620-639. Rates for scores below 620 are not listed, but will be even higher, if you are able to get financing, which may require a co-signer on the loan in the current economic climate.
Fixing your credit score
So before you start shopping for a mortgage or refinance, you’ll want to know your credit score. You can obtain it from any of the three major credit reporting agencies – Experian, Equifax and Transunion. Note that while you’re entitled to obtain a free copy of your credit report from each of these every year, you’ll normally have to pay to obtain your actual credit score.
When you get your credit score, you may be surprised to find it’s higher than you expected. If you initially had to take out a subprime mortgage due to weak credit, your score should have improved considerably if you’ve stayed current on your payments for a year or two.
Once you have your score and credit report, check to see if there’s anything you can do to bring it up, if your score is low. Many people are surprised to learn that they can improve their score dramatically within 30 days simply by paying off high-balance credit cards. If you have savings or other resources you can draw on to pay down revolving debts, it might make sense to do so if refinancing would provide a significant economic benefit for you.
This is one of the places where a mortgage broker or lender can be of assistance. They may be able to help you identify things you can do to bring your score up over the coming months or perhaps a year. Depending on how soon you need to refinance, this could be a better strategy than trying to refinance immediately – even if rates go up overall, the rate that you qualify for might be lower if you can improve your score.
Escrito por admin el 26 de January de 2012 con 0 comentarios
Lee más artículos sobre Uncategorized.