Interested in refinancing but concerned you might have bad credit? First, don’t worry – we offer many mortgage loan problems that don’t require perfect credit to qualify. It may very well be possible to refinance your mortgage even if you have a few blemishes on your credit history.
Why Refinance?
Refinancing your existing home loan can be an excellent way to move closer to your financial goals. Some of the common reasons homeowners refinance include:
- To lower their monthly mortgage payment.
- To lower their interest rate.
- To move from an adjustable rate loan to the security of a fixed rate mortgage.
- To pay off their home sooner with a shorter term loan.
- To lower monthly expenses with a longer term loan.
- To take cash out for home repairs or renovations.
- To consolidate a second mortgage or home equity loan and a first mortgage loan.
- To take cash out for other, non-home related purposes.
Wondering what you could save by refinancing? Call now to check today’s rates.
How Does Credit Impact Qualification?
Credit history is just one of many factors that go into qualifying for a mortgage. Each home loan program has specific requirements that must be met, which may include things such as the amount of equity in the home, the percentage of monthly income that can be allocated towards mortgage expenses, the types of properties that can be financed, whether the home can be used as an investment property or vacation house, and more.
Credit requirements often come into play as a minimum qualifying credit score, and specific events in the credit history that could disqualify a homeowner from a particular program. For example, there may be a limit to the number of late payments shown on the credit report within the past year. These are often broken down into the number of late payments allowed that were 30 days past due, 60 days past due, 90 days past due, and 120 days past due, with the later payments having a more negative impact. A late mortgage payment will generally be more of an issue than a late payment on another bill when it comes to qualifying for a refinance.
Some of the other credit events that could impact eligibility for a specific program are:
- Bankruptcy
- Foreclosure
- Short Sale
- Mortgage Loan Modification
- Deed In Lieu
- Pre-Foreclosure
- Judgments
- Tax Liens
- Collections
- Charge-Offs
The more time has passed since the credit event in question, the less of an impact it may have. In some cases, a bankruptcy one year ago may make you ineligible for a certain program, but a bankruptcy 10 years ago could present no problem.
Credit history and score are not only factors in determining whether an applicant qualifies for a home loan, but may also impact the terms they are eligible for. Some programs allow homeowners with excellent credit to borrower a greater percentage of the subject property’s value, and restrict the amount that can be borrowed to a lower percentage for those with lower credit scores.
Not sure what your credit history looks like? Call to speak with one of our refinancing experts to review your report and discuss mortgage options.
Why Is My Credit Score & Credit History Important?
When homeowners don’t make their monthly payments on time, or worse, go through foreclosure or bankruptcy, it can be very costly for the mortgage lender. As part of the home loan application and approval process, the lender is working to determine whether the applicant is likely to be successful in re-paying the loan over time.
Credit score and credit history are important pieces of information that go into this determination, as how consumers have used credit and loans in the past is often a good predictor of how they will handle new credit accounts and loans in the future.
What If I Don’t Qualify?
If during a consultation with a mortgage loan originator you learn that you may not be eligible for a specific program due to your credit, don’t worry. This alone does not mean you won’t be able to refinance. Here are a few steps you can take:
- Check the accuracy of your credit report.
It’s not uncommon for there to be mistakes on a credit report. There could be late payments showing up for accounts that you’ve always paid on time, or even credit accounts that aren’t yours. This is often seen with common names, or family members with the same or very similar names. Go through your report carefully and address any errors you come across. - Consider alternate loan programs.
Each mortgage program has its own set of requirements. If you are ineligible for one product there may be another with less restrictive guidelines that you may qualify for.
Talk to your loan originator to discuss the options. - Work to improve your credit and reapply.
If you don’t qualify for any refinance programs at the moment that are a great fit for your scenario, you may want to take some time to work on improving your credit and reapply when your scores are higher, or some negative credit events are further in the past. Focus on paying every bill on time, every month. Work on paying down balances on credit cards, auto loans, or other loans, concentrating on the debts with the highest interest rates first.
Through this process you may come across credit repair services promising a quick fix. Do your research and watch out for disreputable organizations that could do more harm than good.
Do you have questions about your credit score, credit history, or refinancing in general? Call today – we’re here to help!
