Many years ago, it would have been particularly hard for those with bad credit
to obtain a mortgage loan in the first place. However, today there are so many
loan options available and so many ways for lenders to protect themselves that
those with bad credit can not only find a suitable mortgage but can also find
appealing re-financing options as well.
Those with poor credit should carefully make a decision as to whether or not
re-financing is ideal for them at the present time but the process is not much
different for them as it is for those with good credit. Those with bad credit
who want to learn more about re-financing should consult a mortgage advisor who
specializes in mortgages for those with bad credit. Additionally the homeowner
should carefully evaluate their credit score and whether or not it has improved.
Finally the homeowner should evaluate their options carefully to ensure they are
making the best possible decision.
Consult a Mortgage Advisor
Consulting with a mortgage advisor is advisable for those with poor credit.
These homeowners may be informed about the process of re-financing but their
situation warrants consulting with an industry expert. This is important because
a mortgage advisor who specializes in obtaining mortgages and re-financing for
those with bad credit will likely be very knowledgeable about the types of
options available to the homeowners.
When consulting with the mortgage advisor, the homeowners should be completely
honest about their financial situation and should provide the expert with all of
the information he needs to assist them in finding an ideal re-financing
agreement. Being completely candid will be very helpful in enabling the mortgage
advisor to assist the homeowner in the best way possible.
Consider Whether or Not Your Credit has Improved
Homeowners with bad credit should thoroughly consider whether or not their
credit has improved since the original mortgage was secured. Homeowners who have
documented proof of past credit scores can compare these scores to current
values. Each citizen is entitled to one free credit report per year from each of
the major credit reporting agencies. Homeowners can obtain these reports for use
in making comparisons to the previous credit scores. Imperfections on the credit
report such as bankruptcies, delinquent or missed payments and other
transgressions do not remain on the credit report.
These blemishes are often removed from the credit report after a certain period
of time. The amount of time the transgression remains on the report is
proportional to the severity of the offense. For example a bankruptcy will
remain on the credit report for significantly longer than a late payment. In
examining the credit report, homeowners should consider the overall credit score
but should also note whether or not previous offenses are being erased from the
credit report in a timely fashion.
Evaluate Re-Financing Options Carefully
Once a homeowner has tentatively made a decision to re-finance the mortgage, it
is time to start considering the many options that are available to the
homeowner during the process of re-financing. Most homeowners mistakenly believe
one factor of the re-financing process they have no control over is the interest
rate. While this rate is largely dependent on the homeowners credit score, even
those with poor credit have the ability to lower their interest rate by
purchasing point. A point is typically equally to 1% of the total loan amount
and may translate to a � of a percentage point on the interest rate. When
deciding whether or not to purchase points, the homeowner should carefully
consider the amount of time it would take the homeowner to recoup the cost of
purchasing the points. This will help to determine whether or not it is
worthwhile to purchase one or more points when re-financing.
Homeowners will also have options in terms of the type of loan they choose when
re-financing. Common options include fixed rate mortgages, adjustable rate
mortgages (ARMs) and hybrid mortgages. The interest rate remains constant with a
fixed rate mortgage, adjusts with an ARM and is fixed for a period of time and
adjustable for the remainder of the loan period with a hybrid loan.
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