Finding the Right Lender for Your Bad Credit Mortgage Refinance

By Gabriel Traverso
Mortgage Credit Problems Columnist

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Finding the right bad credit home loan refinance not only means shopping around with different lenders, it also means checking with different types of lenders.

The Importance of Shopping Around for Your Loan

It is standard practice for lenders of all types to charge a higher interest rate for riskier loans. If you have bad credit, then it's a sure bet that your home loan refinance will cost more than it would if you had good credit. The FDIC recommends that "you should contact several lenders to make sure you're getting the best price," because different lenders will quote you different amounts. Here is another tip to help you find a bad credit refinance: not all mortgage lenders will offer you the same deal.

What Kinds of Mortgage Lenders Are There?

There are three main types of mortgage lenders you should know about: banks and credit unions, mortgage bankers, and mortgage brokers.
  • Banks and Credit Unions: if you've been banking with the same institution for a long time, or if you have a car loan through your bank, it is usually a good idea to check with them first as you already have a history. Credit unions usually offer the advantage of providing a more personal level of service and can sometimes give special consideration to your situation.
  • Mortgage Bankers: these are companies that specialize in originating mortgage loans and sometimes offer more competitive pricing than other lenders. Additionally, some mortgage bankers have specific programs for borrowers with bad credit.
  • Mortgage Loan Brokers: Loan brokers are third party companies who do not write loans themselves, but rather work with mortgage bankers and other lending institutions to find a loan program to suit your situation. A loan broker may be a good place to start if you have bad credit, as they will generally have a variety of programs that might fit your needs.

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