When you suffer from bad credit mortgage refinancing can seem like an impossible task. However, a bad credit mortgage refinance can be accomplished almost as easily as doing your own taxes. Recently software packages have made doing your own taxes very simple and the same can be said for the mortgage industry and government institutions as it relates to obtaining a bad credit mortgage refinance loan. Although, when it comes to doing a refinance mortgage with bad credit you will need help from a lender or broker.
Like any other home loan a bad credit refinance will begin with you filling out a loan application and the broker obtaining a credit report. You will then spend some time with the lender going over your credit report and trying to determine if there are items that can be removed or disputed that will raise your score or at least offset some of the negative effects. Regardless of your credit situation, there is one inviolate rule when it comes to a bad credit home mortgage refinance: your house payments must be current. There are a few lenders who will add any delinquent payments to your new loan but they are few and far between. One of the most important things you can do is to make sure your house payments are made on time for at least the last 6 months before attempting to do a bad credit mortgage refinance.
If you have a current Veteran’s Administration Loan or a FHA Loan there is a program called the Stream Line Mortgage which has as its main requirement that your house payment be current. This will not allow you access the equity in your home but it will allow you to take advantage of the savings that a lower interest rate can provide. Often times, the additional funds available after a refinance, allow you to overcome a money crunch. However, conventional mortgage holders and those seeking streamlined refinance loans will have to provide some basic information such as:
- Proof of Income (a minimum of two months paycheck stubs from a single source)
- Work Verification for the past two years (a single employer and continuous employment is best)
- Proof of continuous hazard insurance on the property
- Proof that property taxes are current
- Explanation of credit issues listed on the credit report
- Possibly pay off any judgments or collections
- Current Home Inspection
- Current Home Appraisal
- Property Survey
- Additional requirements by a particular lender
Once this information is collected, which may take as long as 60 days or more due to mail, fax and clerical issues, the loan can be underwritten very quickly. The process of approving a mortgage loan of any type is called underwriting. An underwriter is the one who requests the above information and will also decide if any additional information is required.
Obtaining a bad credit mortgage refinance may appear simple but there is more than just obtaining documents and submitting them to a lender. Most lenders who deal in this type of loan will require any fees required to produce the above documents to be paid in advance by the borrower. These fees can be as high as 1500 to 2500 dollars or more. They will also require the payment of at least 1 point (a point is 1 percent of the total loan amount) or more depending on the interest rate they deem to be sufficient for the risk they are taking. Even when you have completed all the items listed above and any other requirements of the lender, they may still turn your application down. If your documentation does not meet the minimum guidelines of the company, they cannot make the loan regardless of any money you may have spent trying to obtain all that they asked.
Bad credit mortgage refinancing requires the help of a specialist, someone who has been down the path before and has a number of options when it comes to lenders and lending programs. Choosing a broker to help you through this process is a key factor in the chances of you obtaining a bad credit refinance. The best use of your time in the early stages of seeking a refinance can be spent interviewing potential brokers and asking for recommendations from people who were in your position. Do not take the word of the broker, do your research in order to make the best decision. Getting through the process of a bad credit mortgage refinance successfully means a new start for you and your family, take the time to do it right.