If there has been a credit score decline since your home was purchased, you might be under the impression that refinancing is not an option. Fortunately, refinancing is still on the table for you if you know where to look.
It may not come with favorable terms or a low-interest rate, but if you absolutely need refinancing, here’s how to obtain it.
SPEAK WITH A LENDER
The process will begin with whomever your lender is. While you are encouraged to shop around, your existing lender might have an unbeatable deal. This is contingent on the history your lender has with you, though. Have any mortgage payments been late over the last year or two? If the answer is yes, you still might be able to refinance a loan, no matter how low your credit score is.
If you are able to establish that each mortgage payment has been made on time, a lender may opt to look past other mishaps that have impacted your personal credit score. Their decision will be based on why you need to refinance. If you require cash from your home’s equity, the lender might not be so eager to approve you. If you require different terms or a lower interest rate, then your chances may be better.
CONSIDER A STREAMLINE OR FHA LOAN
There are great choices available to you if you currently have a VA or FHA loan. Each entity has a streamline refinancing program. As suggested by the name, it’s quite simple to be approved. More to the point, verification of your income, home’s value, debt ratio, or credit score won’t be necessary.
The VA or FHA approval process asks lenders to assess the history of punctual mortgage payments. Have payments over the last year been made on time? Is refinancing something that you would benefit from? A better term, lower monthly payment, or lower rate of interest are all feasible. This is only applicable if you already have a VA or FHA loan.
A streamline program will be ideal for borrowers who have poor credit scores, but require refinancing in order to save some money. When it comes to these programs, many VA or FHA lenders do not pull credit. Fortunately, any VA or FHA lender can be used to obtain a loan, so be sure to shop for the right one.
DON’T RULE OUT SUBPRIME LOANS
Subprime loans aren’t all “bad.” Some people are under the impression that they played a role in the economy’s housing crisis. However, nothing could be further from the truth. Also, subprime loans aren’t what they used to be. You cannot simply list your assets and income and be issued a loan anymore. Each applicant must establish that they will be able to afford a loan beyond reasonable doubt.
There are fewer restrictive guidelines with subprime loans. Lenders tend to restrict such loans to books of their own for the sake of creating personalized guidelines. If a credit score of 500 is acceptable to them, they may approve a loan request. You are encouraged to shop around for lenders before deciding on a specific one. Refrain from using the first bad credit lender you come across. Think about their loan charges and how your finances will be impacted by it.
GET SOMEONE TO CO-SIGN
If nothing else, ask a friend or family member to be a co-signer for a loan. Granted, they will take on some of the responsibility if you are neglectful of payments, so honesty and trust is a crucial factor when making such a request. The person you ask to co-sign your loan might have the ability to offset any risk posed with a poor credit score. However, be mindful that when lenders see the credit score of you and your co-signer, they will use the lower score, regardless of who has it.
Credit scores are used by lenders to establish interest rates that you’ll be charged. Risk-based prices are what lenders use. In other words, the interest rate you are charged will be based on your default risk. Poor credit scores go hand-in-hand with high default risks. Factoring in a co-signer who is responsible with their credit could be beneficial in offsetting such risk, and subsequently, getting you approved for a loan you requested.
PERFECT YOUR CREDIT
You should always endeavor to keep your credit score high. Visit www.annualcreditreport.com and review your credit score. Determine why you have such a low score, if applicable. Are there any late payments you’ve neglected? In comparison to your existing credit, could any outstanding credit you have be too high? Are you responsible for excessive revolving accounts?
Endeavor to improve whatever your current credit score is. If you have any payments that haven’t been made yet, pay them. If you have revolving credit, pay it down. You should also be sure to keep a fair balance of revolving and installment credit. All of your credit accounts should be open, also. The older a credit account becomes, the better a credit score will be.
It is possible to get refinancing if your credit score is low, but you’ll need to be a little creative. Review the options at your disposal and determine which of them can help you repay a loan quickly and at a low price.