How Bad Credit Can Affect Your Mortgage Refinance

By Gabriel Traverso
Mortgage Credit Problems Columnist

Refinancing your mortgage may be possible if you have bad credit, even if you've discharged a bankruptcy. However, your credit score and other qualifications will affect your mortgage refinance pricing.

Having Bad Credit Means You Pay More

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Even in today's changing housing market, there are many lenders who specialize in bad credit mortgage refinance, often referred to as subprime lenders. While your bad credit might not prevent you from getting a loan due, it will influence several aspects of your refinance.

Your Credit Score

One of the biggest factors lenders consider when qualifying you for a mortgage loan is your credit score. A score of 740 or higher is considered very good or excellent, and less than 600 is usually considered bad. A number of things can cause your low score: late payments, bankruptcy, too much new credit, high balances, or collection accounts. Get a copy of your report before you apply for your mortgage refinance and make sure all your information is accurate.

How Bad Credit Affects Mortgage Pricing

Lenders generally classify borrowers into four groups: A, A-, B, C, and D borrowers. A and A- are those with passable to excellent credit. B, C, and D are those with bad credit. In this group, scores range from 400 to 620 and borrowers usually pay higher rates and higher fees. If you are a C or D borrower you could pay much higher interest rates and fees, and receive much less favorable terms than those with good credit.

Ask Questions About Your Loan

Your bad credit will undoubtedly affect the price of your mortgage refinance, but that doesn't mean you can't ask questions or negotiate. Some less scrupulous lenders will tack on as many fees as they can--and many borrowers never question it. To get the best deal possible, request offers from at least three different lenders, and review the paperwork thoroughly. When it comes to fees and points, look for charges you can negotiate.

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