Bad credit happens. This may be particularly the case for thousands of people without work due to the coronavirus pandemic. Still, you can refinance your mortgage with bad credit. It may be more challenging, but it is possible.
Coronavirus pushed interest rates to record low levels. Such low rates are the driving force behind the rising refinancing of mortgages – an increase of 89.54% from the last quarter and an increase of 297.3% from just one year ago, according to US mortgages.
Look at your options and your limitations, and Visit Credible to compare rates from multiple lenders all in one place.
How To Refinance Your Mortgage With Bad Credit
If you have bad credit, you can qualify for private sector programs, options backed by the federal government, or you can try co-signing with a stronger borrower. If you are considering using a cosigner or want to see if you are eligible for refinancing alone, Credible can help. Click here to learn more about refinancing your mortgage and whether you would be approved today.
Here are four ways to refinance a mortgage loan for potential borrowers.
- FHA Streamline Refinance Program
- FHA refinancing of rate and term
- VA refinance
- Portfolio loans
1. FHA streamlined refinancing program
If you have an existing FHA loan, you may qualify for the FHA Streamline Refinance program, which can permanently lower your monthly payments. Most lenders will not check your credit or require an appraisal because you already have an FHA loan. You may qualify for current refinancing rates, but you will probably need to show that you have made six consecutive monthly payments on time, in full.
2. FHA rate-and-term refinancing
An interest-and-term refinancing is for anyone who already has an FHA loan. It is designed to help you refinance your current mortgage and reduce your monthly payments. A new home assessment and credit check is part of the application process, and like the Streamline Refinance program, you must show six months of continuous ongoing payments paid in full.
3. VA refinance
If you currently have a VA loan, you can refinance with an interest rate reduction (IRRRL) refinancing loan. In general, lenders do not require credit checks or home appraisals to qualify. VA allows you to refinance up to 100% of the value of the property, but there is a prior financing fee that can be added to the loan amount.
4. Portfolio loans
A portfolio loan originates from and is held by your mortgage lender. Because your mortgage lender is 100% responsible if you default on your loan, your credit history and finances will be audited. There is likely closing costs and other fees to be paid at the time of closing or added to your loan payment.
What are today’s mortgage rates?
The COVID-19 pandemic pushed interest rates lower than they have been for many years. That’s why it’s such a good time to refinance your mortgage – even if you have bad credit.
These are current mortgage rates, according to Freddie Mac:
- 30-year fixed-rate mortgage (FRM): 2.79%
- 15-year FRM: 2.23%
- 5/1-year mortgage loan (ARM): 3.12%
Borrowing rates fluctuate with supply and demand in the secondary market. If the supply of money increases and the demand for money falls, so will interest rates fall – exactly what has happened due to COVID. If you want to take advantage of today’s low mortgage rates, be sure to use Credible’s free online tools to refinance and start saving today.
The Federal Reserve does not set mortgage rates, but it can affect interest rates. Last August, Federal Reserve Chairman Jerome H. Powell stated that interest rates were likely to remain low for some time to recover from the recession caused by the COVID-19 pandemic.
Compared to the current interest rate of 2.65% for a 30-year FRM, on January 2, 2020, the 30-year mortgage rate was 3.72% and on December 26, 2019, the interest rate was 3.74%. On the same date in 2018, the rate was 4.55%. Even a percentage point can make a big difference in your monthly payments.
If you have bad credit but you want to take advantage of the current low interest rates, Use an online mortgage calculator to determine new monthly costs. Credible can too helps you crush the numbers and determine what your monthly payments and total costs would be.
Should I increase my credit score first?
Banks, credit unions and many online lenders offer better interest rates to people with good credit. Although the credit score required to qualify for a refinance varies from lender to lender, most mortgages require a minimum credit score of 620, according to Experian.
To get the best rates (and pay less interest over the course of your loan) it makes sense to increase your credit score before applying for a mortgage refinance. Therefore, interested borrowers should Visit Credible to be pre-qualified without affecting their credit score.
How to increase your credit score
- Make all your payments on time. Payment history accounts for a large portion of your credit score – 35%.
- Pay off debt. Payment of all credit card balances to less than 30% can improve your credit utilization rate (the percentage of credit you spend relative to your available credit) and increase your credit.
- Do not close old credit accounts. Even if you do not use an old credit card, keep it open for improve your credit history.
- Do not open too many accounts. Lender investigations of your credit can hurt your score and it is never a good idea to carry too much debt.
- Keep an eye on your credit score. Checking your score does not hurt your credit. It can also give you an idea of where you stand and when applying for mortgage refinancing.
- Make sure your credit report is error free. When you look at your credit report and find the information you are not sure about, contact the three major credit bureaus and report your findings.
If you are considering refinancing, you may want to consider using credible. You canuse Credible’s free online toolTo easily compare multiple lenders and see pre-qualified rates in as little as three minutes.
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