You Can Refinance - Even With
Bad Credit |
By Steve Faber |
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So, you want to refinance, but your credit is less than perfect
Don't worry, all isn't lost. You have some options. You can still
refinance to take advantage of the equity in your home for extra
cash. You can consolidate debt, pay for home remodeling or just
about anything else with the extra cash. It could be used to get you
on the path to financial independence. Remember, if you've got bad
credit now, you can reclaim a good credit rating with just a little
patience and prudence. If you're trying to be financially secure,
whatever you do, don't use the cash from the refinance for frivolous
purposes such as a vacation or new boat. You can leverage the equity
in your home to achieve financial freedom through a cash out
refinance, even if you've got bad credit.
Where can you start
First, you must collect all the necessary information. Pull a copy
of your credit report. You get one free each year from each of the
three major credit reporting agencies. Call 1-877-322-8228 for your
report. That is a central request number for all three agencies. See
if there are any inaccuracies on the report. One 2004 study found
that over 25% of all credit reports contained errors. These credit
report errors can be things like false accounts or delinquencies
(25%), listing the same debt multiple times (22%), or paid off
(closed) accounts that are still listed as open on the credit report
(30%). Your credit may not be as bad as you think. Some of your
negative credit history may be due to these errors. If you find any
inaccuracies, correct them. This may take some time, but will be
worth it. You'll improve your credit score and get a better rate on
your refinance. It will take from 60 days after nay
inaccuracies have been corrected for the results to be reflected on
the credit report.
The other information you can see on your
credit report is when any black marks on your credit occurred.
Mortgage companies place more emphasis on credit problems in the
last year, so it may be beneficial to wait a few months before
attempting your refinance. You'll have more success and get a lower
mortgage rate if any credit problems are at least a year behind you.
Make sure you've been paying all your bills on time, not just the
big ones.
Another item lender look at is your debt to income
ratio. The higher it is, the worse your mortgage interest rate will
be. If there are any small accounts that you can close before you to
get your refinance, close them out. You'll improve you debt to
income ratio and thus your refinance rate.
After you have
done what you can to maximize your credit score, you need to find
the proper lender for your refinance. There are literally thousands
of different lenders that will refinance your home. Some work with
consumers with bad credit, some don't. Among those that will do bad
credit refinances, some are better than others. First, get some
information on current interest rates and rate movements. That way
you'll know what to expect. Look at the APR, not just the interest
rate. The mortgage's APR includes the total interest paid, including
fees and other miscellaneous charges. By looking at the APR, you can
determine weather or not a mortgage company is trying to hide extra
fees and charges. The Federal Truth in Lending law requires mortgage
companies to disclose the APR when they advertise a rate.
After you've got a good idea of what mortgage rates are, take a look
at the mortgage firms in your area. Check up on them through the
Better Business Bureau and your local chamber of commerce. If you
want to use the refinance to improve your property, you should look
at an FHA Title 1 home improvement loan. This sort of loan is not a
true refinance, but a federally insured loan whose funds must be
used to improve your property. It can be up to $25,000. Because it
is federally insured, lenders are more likely to approve it, even if
your credit score is a bit lower. Any lender that refinances and is
approved by the federal government can typically get you one of
these loans.
There are many companies that specialize in
getting multiple rate quotes. In this way you can see rates from
different mortgage companies all in one place. It's kind of a one
stop shop of refinancing. There are some important things to look
out for when getting a bad credit refinance. Some lenders think they
have you with no other place to turn and will try to add in all
sorts of clauses and fees. Here are some mortgage red flags to watch
out for.
Prepayment penalties. These will preclude you from
paying off your loan early when your financial picture gets better.
It will also prevent you from refinancing to take advantage of
better interest rates. Avoid a refinance with these penalties. High
pressure sales tactics. What are they hiding If they are
giving you pressure to sign right now, just walk away. They are
probably hiding something. At the very least, have the mortgage
contract examined by an attorney. If the lender is more intent on
the equity in your property than if you have the ability to repay
the mortgage. If the lender isn't worried about you ability to
actually repay the mortgage, that should tell you something. Either
you have a very high income, or the mortgage company is salivating
at the prospect of foreclosing on your home.
You can get a
bad credit refinance on your mortgage. There are just some steps you
should take first to make sure it is advantageous for you as
possible. Your financial future will thank you. |
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