How to Re-Financing with Bad Credit
Many years ago, it would have been particularly tricky 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 cautiously think about 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 recommended 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
entirely 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 decide 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 expunged 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 ¼ 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.
ABOUT THE AUTHOR
Bob Schwartz, is a Certified Residential
Specialist, CA licensed real estate broker with
www.Brokerforyou.com. Bob
has over 27 years of residential real estate experience, authored a
number of published articles and served as an expert witness for
San Diego lawyers. You can contact
Bob via e-mail at bob@brokerforyou.com or visit his highly popular
San Diego real estate website at:
http://www.brokerforyou.com
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