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Bad Credit Mortgage Refinance: Understanding the New Requirements

By Gabriel Traverso
Mortgage Credit Problems Columnist


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If you've started researching your bad credit mortgage refinance options you've undoubtedly come across a host of confusing terminology. If you have bad credit you're probably curious about whether you'll even qualify for a refinance.

Qualifying for a Mortgage Refinance with Bad Credit

The companies specializing in bad credit home loans are now getting hit with rising foreclosure rates as well as the possibility of heavy-handed regulation from the federal government. In May, the number of foreclosure filings was up 90% from the same time last year. What does this mean for you, the bad credit borrower? It might be harder to get a home loan refinance now. Here are some of the key requirements you'll likely need to meet:
  • Income verification. You'll probably only qualify if you can prove you can afford the loan and prove your income.
  • Debt-to-income ratio. Some lenders have allowed high debt-to-income ratios--how much you owe compared to how much you make--in the past, but now you may only qualify if your debt payments are less than 40% of your income.
  • Loan-to-value ratio. Also referred to as LTV, this term refers to how much you owe on your home, or how much equity you have. In recent years lenders were willing to loan 100% or more against the home, but that has changed. In today's market you might only qualify for a 60% or 70% LTV.

Contact Your Mortgage Lender

If you think you might qualify for a home loan refinance, start checking out lenders. Shopping online allows for faster price comparisons--check with your existing lender but also shop to see if you can get a better deal on a home loan refinance elsewhere. If you find that you keep stumbling over your bad credit score you may need to spend some time cleaning up your credit before you apply. However, there are still plenty of mortgage lenders willing to work with bad credit borrowers, so don't be afraid to look!

Source
BusinessWeek

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