Bad Credit Refinancing
Getting a mortgage refinanced is like getting a new mortgage. You will need to show to your lender or new lender that you can pay back the borrowed mortgage and that you can be trusted to be a handed the large sum of money into your bank account. Having bad credit refinancing with low FICO score, is not a good start on a way for mortgage refinancing. Lenders will check your score, and investigate all the negative claims on your report before deciding to accept you as a borrower.
People who plan to refinance through the FHA refinancing programs, may be disappointed to find out, that the FHA accepts borrowers with 580 FICO score, but no bank or lending institute will get you approved with a score lower than 640! This situation happens because it is not the FHA who is lending the money, but the lenders. And after the sub-prime disaster of 2008/9 they are not willing to take the chances with bad credit applicants, and accept people by new and higher terms.
Get Your FICO Report
The first thing you need to do, is to get your credit report from MyFico, you are entitled to get your credit report from each of the three CRAs (credit reporting agencies) once a year for free. With the credit reports you could learn what negative items are reported on your report and how does the creditors see you.
FICO Report Is Your Financial X-ray
The FICO score is a chart that examines all your credit debts and the credit balance and history. With this credit report the lenders learn about your credit worthiness and may decide if you qualify for refinancing. Having a score higher than 700 will get you accepted at any lending bank as it means that you are straight with managing your debts and pose less risk on them. Any change in the FICO score (higher or lower) will result in a change of your refinancing interest rate.
Refinancing With 600 FICO Score
If you do NOT have a FICO score over 700, than you will need to choose, either to accept the higher interest rate or to raise your score. Refinancing with a score lower than 700 means that not every lender will accept to get you qualified. This means your negotiation position has less leverage (than for people with FICO over 700 score). The lenders know their competition and know other lending institutes are just as careful as they are, so they can be more tough when negotiating the refinancing interest rates, as they know you have less options to leave the table.
The good side is that, if your credit score is at the 600, it means you have a good chance to rebuild your credit score. The negative items on your score are probably not that severe if your score is over 600, this gives you hope to begin a credit repair program and see results. These programs people with bad credit buy today are quite cheap ($37), they help gain huge financial benefits and save thousands of dollars on better rates and lower credit interest rates. You should aim at the higher 600 score (660-699) level to get better refinancing rates.
Refinancing With Less than 600 Score
Having a FICO score of less than 600 points, places you as a person with ‘bad credit’ this means that in the eyes of your creditors and lenders you are a ‘persona non grata’ - Unwanted person or ‘un welcome person’. While the creditors are making money on your high interest rates, for the lender you are a risk, a financial ‘time bomb’ which lending large sums of money may be a deep mistake.
The good side is that with some efforts you can change the way the lenders will see you, but for this plan to succeed you need to start right away, like as TODAY. Although the FHA accepts borrowers with score less than 600, for the maximum down payments requirement they need to see a 580 score or higher. The 2011 FHA down-payment requirements accepts FICO scores of 500-579 but only for 10% down payment financing programs.
If your credit score is below the 580, you need to undergo a personal credit repair program, which will pull you out of the financial mud you are stuck in. The 37 days repair credit program may be good place to start, or in your condition you may need a credit repair software to help you manage your credit improvement.
Going through credit repair forums you may see here and there specific lenders (usually mortgage brokers) announcing they accept the FHA 580 minimum FICO score. Though it might be wise to see the terms they offer before accepting such mortgage plans, but it shows that with some effort on fixing your bad credit you may have a chance to pick your best refinancing offer.
So What Can You Do To Improve Your Situation?
If you will do nothing.. don’t expect anything to happen. The best advice is to bump your credit score up! It will give you better leverage when facing the lenders, and better negotiation position when applying for any financial need.
Lets not forget you are probably paying $500-$1000 extra per year in higher interest rates, and credit payments.
If your score is below 700, you might want to clean it yourself – get this ‘Credit Repair University’ which will save you money and time.
Yes, you might need to invest a small sum to get a grip of things.. But if you think education is expensive.. try ignorance..
You are probably paying thousands of dollars per year in fees and interests to credit companies which could be going straight to your pocket. Don’t be cheap when it comes to financial education..
Ignorance costs more.