Mortgage refinancing with bad credit

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Loans Up To $2500

By CreditNinja
Modified on February 26, 2024

Should I sell my home? How do I afford payments on my mortgage with bad credit? Can I refinance even with bad credit? These are all important questions if you’re dealing with mortgages and bad credit.

Owning a home can be a wonderful investment. And If you do your research it could be financially beneficial in the long run. However, many Americans that are struggling financially may feel trapped by home ownership.

How Does a Mortgage Refinance Work With Bad Credit?

The first step is understanding what a mortgage is. In the simplest terms, a mortgage is just a loan for purchasing a home. They tend to be very large loans, since homes are expensive. They are also usually offered with repayment terms lasting 15 or 30 years.

When applying for a mortgage your credit score will be reviewed to determine your interest rate. A better credit score means a lower overall interest rate, or APR (annual percentage rate). Once you’re approved for a mortgage you can purchase the home and begin repaying the loan.

A mortgage refinance means that you’re essentially applying for a brand new loan to pay off the initial mortgage.

Benefits of a mortgage refinance are:

  • Lower monthly payment
  • Paying off the loan faster
  • Reduce financial stress
  • Changing the type of interest rate
  • Accessing their equity in the home

So how does a mortgage refinance work? It’s very similar to the process for the initial mortgage. You can find a lender that offers these loans, or use the same company as the initial mortgage. You’ll fill out an application, the lender will decide whether it’s approved, and if so you’ll be offered a new mortgage.

Can You Refinance With a Credit Score Under 600?

Just like with any other type of loan, having a good credit score means more favorable loan options. While it may be possible to get a mortgage—or to refinance—with bad credit, it’s certainly not easy.

In many cases, you’ll need a credit score of 620 or higher for a conventional refinance. That being said, there are always options. Many government programs exist to help borrowers with less-than-favorable credit. The programs help borrowers get mortgages and refinance them even if their credit score is lower than 600.

If you have a credit score of 600 or below, you can search for these programs online. Try searching for “government mortgage assistance programs” in your area.

What Is an FHA Loan?

FHA stands for Federal Housing Administration. This is a program that helps borrowers with bad credit get the assistance they need with mortgages and refinancing. The FHA insures these loans, and they’re offered through different FHA-approved lenders.

The FHA also assists borrowers who currently have mortgages, with all their refinancing needs. There are several different options to refinance with the FHA. An FHA streamline refinance, for instance, may allow the borrower to get a lower interest rate. An FHA cash-out refinance, on the other hand, gives the borrower the option to get a new, larger loan and receive cash for the difference.

Make sure you research all of your potential FHA loan and refinance options if you have poor credit.

What Is a Cash-Out Refinance?

A cash-out refinance is similar to a conventional refinance, with a couple of key differences.

With a conventional refinance you’re getting a new mortgage with different terms. Maybe you’re shortening the length of your loan, or getting a better interest rate. With a cash-out refinance your new loan is larger than the amount you currently owe. The lender then gives you cash for the difference.

So if you currently still owe $100,000 on your home, you might get $120,000 through a cash-out refinance. The extra $20,000 would go to you as a personal loan of sorts. You could use this extra cash to remodel or renovate, pay for unexpected bills or emergencies, or whatever reason you see fit.

Good Advice for Refinancing your Mortgage with Bad Credit

The best advice we can give you here at CreditNinja, is to do your research and do it thoroughly. Make sure to look into government assistance programs, and other lenders. And don’t feel rushed into signing the papers if you’re not 100% sure it’s the right decision for you.

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