Looking into refinancing your home loan can be a positive step in the right financial direction for you and your budget. Some benefits of refinancing are:
- It can lower the amount you owe overall on the loan
- It can lower your interest rate
- It can reduce your monthly payment obligations
What if you have poor credit? In that case, it can be a little challenging to receive refinancing approval from a lender. Note that I said challenging, not impossible. Below, I get into more tips about how you can refinance your home with lackluster credit.
Steps to Take to Improve Your Credit
Before you begin your search for refinancing, it’s a good idea to see if there is anything you can do to improve your score. Ultimately this will improve your odds of approval with a lender.
- Are there any debts that you can pay off or reduce to improve your score?
- Are there any late payments that you can repair within a reasonable amount of time?
- Are there marks like tax liens on your credit that you can have removed from your credit report?
- Do you have anything on your credit history that’s bad?
Speak to Your Current Lender
If you have a positive history of payment with your current lender, then why not reach out and speak with them before shopping around for a new lender. Since you already have an established relationship with your current lender, they could be more willing to work with you regarding your refinancing inquiry. In some cases, this could be a better option than a new lender if you have a poor credit history.
Speak to Other Lenders
Perhaps your current lender is offering you adequate refinance terms, but that doesn’t mean it’s not a good idea to shop around. There’s a good chance other lenders can offer terms that are potentially better or lower payments. Even if you have bad credit, it’s possible to find another lender who may be able to provide you with terms that can help you save you a lot of cash monthly, or throughout the loan duration.
Consider Applying for HARP
HARP (home affordable refinance program) is a government program that’s designed to help people who had their mortgages initiated on or before May 31st of 2009. There is no score requirement for this program, and if you’re approved, borrowers can reduce their monthly payments, restructure and shorten the terms of their mortgage, as well as lock in reduced interest rates.
Seek a Cosigner
It can be difficult to get, but if you can lock down a cosigner who has better credit than you when refinancing your home loan, you’ll likely have a few better options available. Just be careful when using this option because your cosigner will be just as financially responsible for the loan as you are. This means if anything goes wrong with the loan, it impacts both of you.
Streamline Your FHA Loan
If your mortgage is an FHA (federal housing administration) loan, it might be possible for you to take advantage of the FHA Streamline Refinance Program. Just know that you can only apply for this loan if you are up to date with all the payments on your FHA loan. On the upside, this method of refinancing doesn’t generally require a credit check since the FHA views your approval with them as your qualification.
Refinance Your VA Loan
If your home is mortgaged through a VA loan, chances are you can refinance through the VA’s IRRRL (interest rate reduction refinancing loan) program. The nice thing about this refinancing option is that they don’t traditionally use a credit check to check for eligibility. Other terms can vary depending on the private lender who is in charge of the loan and the state you live in.
Don’t Refinance if You’re Planning to Sell Soon
If you have plans to relocate and you’ll be placing your home up for sale soon, I strongly advise that you don’t refinance your mortgage. Why? Because refinancing your mortgage before taking on a new loan for a new home may complicate things and make it far more difficult than it needs to be just to find a lender. Not to mention, if you do this you could potentially mark your credit history by taking these two actions back-to-back, and we don’t want marks on history. If you are planning on selling in the near future, I implore you to wait on any mortgage changes if you can and continue keeping up with your payments. Trust me on this, by doing this you take better care of your budget and financial needs.