It is a relief to know that people interested in refinancing their home mortgage can do so with bad credit. Mortgage refinance loans operate very similarly to principle mortgage loans. This means that there are ways to receive a refinance loan with bad credit through certain lenders who specialize in such business. However, it is important to know what choices you have before you even begin searching for a mortgage refinance loan with bad credit.
Refinance Loans: A Definition
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There are two primary reasons that people choose to refinance their mortgages. First, they may want to get a better interest rate. Second, they may need to use their home's value to get cash.
When you took out the initial loan for your home mortgage it is likely that you borrowed a lot of money. If you had bad credit at the time, the conditions of that loan may have been less than favorable. Now, with interest rates at record lows, the opportunity to refinance that loan for a lower interest rate is really appealing to many homeowners, which leads them to refinance. However, the actual state of your credit will come into play here since really bad credit scores are not likely to lead to more favorable interest rates.
Additionally, many people choose to refinance their home loans for the purpose of extracting equity, by way of cash, from the value of their home. As long as you have been paying off your original home loan for a long enough period of time to acquire at least 20-25% equity in your home, this is a possibility. Your refinance loan will repay the remaining value of your current mortgage plus the amount of cash you need. These types of refinance loans can be used to fund anything from home repairs to college educations and are also called secured loans.
Why Credit Is Important
When looking to refinance your home mortgage, you are, once again, asking lenders for a very large loan. Remember that the money you are asking for needs to equal payments the same as or less than your current mortgage payment or else you will be taxing your budget even further. No matter the reasons for your refinance, you will need to know your credit score and understand the penalties that can befall you should you have bad credit.
Mortgage refinance loans rely on credit as much as home loans. However, since there is no need for a down payment here, your history as a borrower plays a larger role in the determination of your loan terms. Therefore, the actual number of your credit score will be important. Though you can find a refinance loan with bad credit, the terms of that loan may not be as good as the current loan you have on your home, especially if you got that initial loan when your credit score was higher.
Finding the Right Lender to Refinance
Generally, most traditional lenders will not wish to refinance your home loan if you have bad credit. That is because, even though you already have a home loan that you are paying off, you present a risk to the lender as a result of your credit score. There are programs, however, designed to get people better lending deals if their initial home loan was an adjustable rate mortgage given during the housing boom. In these cases, you should likely consult a debt counselor or other financial professional before moving forward with your loan.
For other instances, online lenders provide an excellent outlet for those with bad credit looking to refinance their home loan. However, it is important to remember that mortgage refinance loans are no different than any other loan. If you have bad credit, it is absolutely critical that you get several quotes from several reputable lenders before making a choice.
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