Bad Credit? How to Shop for the Best Mortgage Refinance

By Gabriel Traverso
Mortgage Credit Problems Columnist

Just because you have bad credit doesn't mean you can't check with different lenders and negotiate the best possible deal. What's the best way to get a decent rate on a bad credit mortgage refinance? Shop around!

Comparing loan options with different lenders doesn't have to be a chore. Getting your home loan refinance can actually be easier than you think. Despite your bad credit, you have a variety of options and there are plenty of lenders willing to work with you. Knowing what questions to ask before you get started will make the task go smoothly and help you get the best possible deal.

Questions to Ask When Shopping for a Mortgage Refinance

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Some of the top questions you should ask as you negotiate your bad credit mortgage refinance are:

  • Can any of the closing costs or fees be waived or negotiated?
  • Is there a prepayment penalty? If so, how much, and is there an option without the penalty?
  • Are extra principal payments allowed?
  • Is there a lock-in agreement in writing? Hint: a lock-in is a written guarantee that you will be paying a specific interest rate providing the loan is closed within a certain time period. The lock-in gives you the rate, but check your Good Faith Estimate and Truth in Lending to be sure of what the charges for that rate will be at closing.
  • If the rate drops before the loan closes, can you lock-in the lower rate? This is called a float-down.

Shopping for a bad credit home loan refinance involves asking questions, getting the details in writing, and making sure the documents agree with what you have been told. The interest rate, APR, and closing costs should all be disclosed on a Good Faith Estimate and Truth-in-lending disclosure form. The lock-in agreement should say what the rate is and how long it is locked in.

Make sure you compare the same loan amount, terms, and type of loan between different lenders. Shopping around will give you the best chance to get a good deal, so prepare your questions in advance and keep all the paperwork. You might find you actually enjoy it, too, once you understand the process.

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