Your home is one of the investments that you want to protect. Aside from credit ready repair, refinancing your home mortgage is one of the options to hold onto your investment. However, if you have a bad credit history, finding lenders is a challenge for home mortgage refinancing. Forget about banks and other financial institutions; they will probably decline your application since you have a bad credit history.
Subprime lenders are willing to offer loans to individuals with bad credit histories. You can find them online, through friends, or through referrals from other lenders. Subprime lenders are sensitive since they offer loans to high-risk debtors, so seeing one will take time.
However, refinancing your home mortgage through subprime lenders has downsides.
1. Higher interest rates
– because you have a bad credit history, you’ll become a high-risk debtor; a subprime loan is several points higher than prime loans.
2. Higher origination fees
– origination fees are the upfront service charges you pay the lender for handling your loan. You’re paying more origination fees than a conventional loan.
3. Longer repayment period
– subprime lenders may insist on extended-term loans that require more years to pay. It means you have to pay more overall interest on a loan with a high-interest rate.
Recovering from bad credit outweighs the disadvantage of higher interest rates. It would help if you were patient when rebuilding your credit score; you’d have to endure paying high-interest rates before you reach your goal. Your trusted credit repair company can help you achieve that goal.
Before you apply for refinancing, you might want to check the following:
1. Know your home’s equity
– if your house has lesser worth than before your mortgage, then refinancing won’t make any sense.
2. Know your credit score
– lenders have been strict in their standards for loan approvals in recent years. Even individuals with good credit don’t usually qualify for the lowest rates.
3. Know your debt-to-income (DTI) ratio
– your DTI ratio should be 36% or less. Pay off some debt before refinancing because lenders become strict on your credit score and your DTI.
4. The cost of refinancing
– refinancing fees can be paid by the lender or even reduced. You can roll the cost into your new loan if you have enough equity.
5. Rates vs. The Term
– if you want to reduce your monthly payments as much as possible, you will want a loan with the lowest interest rate for the longest time. If you want to pay less interest, look for the lowest loan in the shortest time.
Refinancing on the same bank or lender is more convenient because they already know your information on file, and they might offer you good deals; however, you can find the best deal possible if you shop around.
Being patient in finding the most compatible lender will only save you money later. Find a trustworthy lender as patient as you. Maintaining a good relationship with your lender is beneficial because you get your lender to trust you even though you have bad credit. And prove to your lender that you are determined to increase your credit score.
Options when refinancing with bad credit history:
1. Apply with a non-occupying co-client
– a co-client is someone who doesn’t live in your house but is willing to take financial responsibilities when you default. Lenders will look at both of your credit scores before approving your refinance. And your co-client may need to be on your home title.
2. Cash-out refinance
– taking cash out to refinance and paying down what you owe can help you get back on track financially. You can use the money to pay off existing debts and boost your credit score while you’re at it.
3. Rate-and-term Refinancing
– allows you to change either the term or mortgage rate. It is ideal if you see yourself in an ideal financial position.
Refinancing is a good idea if you can reduce the interest rate by 1% or more. You can also quickly increase your home’s equity by refinancing to a lower interest rate.
Having a bad credit history can be challenging for an individual, so we are encouraging you to maintain a good credit score and be responsible for your finances and debts. Financial management can be problematic because of certain circumstances; however, sticking to your budget plan will only lead to financial stability.
A credit repair agency near me can help you with your bad credit. Credit repair will only help you and give you advice and what to do and how you will do to repair your credit because, at the end of the day, your financial habit will decide whether you will boost your credit score or not.