How to Apply for Refinance with Bad Credit

2007-03-08 10:33:40

( Financial )



Individuals with low credit scores can opt to refinance with bad credit. Refinance with bad credit also means to apply for a bad credit mortgage or subprime loan. When you refinance, you repay your loan by using your property as a security or collateral without providing any cash as payment.

There are several types of bad credit mortgages:

A fixed-rate mortgage guarantees that your monthly payments are fixed over the life of the loan. Equity is built faster if payments are made twice a month.

A balloon mortgage is similar to a fixed-rate mortgage, but with lower monthly interest rates, shorter repayment times and a higher payment amount at the end of the payment term.

An adjustable rate mortgage (ARM) is applicable when market interest rates are at a high. Interest rates are dependent on the financial index, and monthly payments vary according to these rates that can go up and down.

Individuals decide to apply for bad credit mortgage loans because of the lower interest rates that become available. Some can take advantage of better interest rates because of their improved credit score or rating, while others wish to cash out on their equity that has built up to obtain funds for debt consolidation, to make home improvements, purchase a car, or for other reasons. Others decide to refinance with bad credit to switch from an adjustable rate mortgage to a fixed rate mortgage, or vice versa. It is also time to apply for a bad credit mortgage when your new loan becomes less than 80% of the cost of your home because there is no longer a need to pay for private mortgage insurance (PMI).

To refinance with bad credit is to be persistent in submitting your applications with bad credit lenders. Most bad credit lenders will take a look at your credit score, employment history, income, your current bank balance and your current debts. Any bankruptcy, liens against yourself, or any foreclosures also affect your credit score. Bad credit lenders may wait for 2-3 years before they allow you to refinance with bad credit if you have any bankruptcy filings, liens or foreclosures on your credit report; however, not all bad credit lenders follow this rule.

It is important that you obtain a copy of your credit report, and correct any errors that you may find. Ensure any that unpaid accounts and closed accounts have been reported accurately. If you have a credit score below 620 points, pay off any small amounts and any past due accounts to help increase your credit rating. You must have a credit score of above 620 points in order to qualify for a bad credit mortgage.


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