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Tuesday, November 1, 2011

Bad Credit Home Mortgage Refinance - What to Do?

Many people assume that refinancing is something that only people with a spotless credit history can do. They have written off the possibility, believing that their low FICO score will prevent them from ever being approved for a refinance. Actually, that isn't the case. Many lenders specialize in bad credit home mortgage refinance options for homeowners, and here's how to go about it.


Before you apply, though, you must analyze the reasons why you want to refinance. Refinancing your home mortgage can have many long-term benefits, including extending your loan life (so you have more time to repay your mortgage) and allowing you to move to fixed interest rate loan instead of an ARM. Over several decades, these factors can really make a difference.


In addition, if you refinance to mortgage rates that are more reasonable and affordable, you'll be able to make your monthly payments and watch your credit scores rise as a result. Keep in mind that these are all long-term benefits - meaning that they only benefit you if you plan to stay in your home for a long time.


Use a mortgage refinancing calculator or talk to a loan specialist about whether refinancing is a smart financial move for you. Refinancing carries costs - there are fees associated with paying off your first mortgage, points, preparing documents, and applying for a refinance. Refinancing only makes sense if you plan to stay in your home long enough to recoup the costs.


If you have bad credit, there are extra considerations. The lower your FICO score, the higher your refinance interest rates will be. So even though you may qualify for a refinance, it may not really save you any money if your credit score is lower now than it was when you first bought your home and took out your original mortgage loan.


So to recap, there are two scenarios where refinancing may make sense for those of you with poor credit:


You have an ARM or interest-only loan, which is about to go up. Refinancing to a fixed rate loan may save you thousands of dollars in interest over just a few years. You have suddenly come up short for cash to pay unexpected medical or other bills and need to extend your loan out over more time. Smaller monthly payments equal more money in your pocket for today's expenses.


If those scenarios fit you, it may be time to look into a bad credit mortgage refinancing company. Proceed with caution when giving companies your financial information, and never do business with anyone who doesn't appear 100% reputable.


Before applying for a refinance, you should also request copies of your credit report from Equifax, Experian, or TransUnion. If you can spend a few months concentrating on strategies that will improve your credit (such as paying off high-interest credit cards) before you actually apply for a refinance, you'll stand to qualify for much better rates.

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