If Bad Credit Has Given You Refinance Trouble, Try, Try Again
By Richard BarringtonMortgage Credit Problems Columnist
A dramatic drop in mortgage rates at the end of November sparked a record jump in mortgage application activity, led by refinancing. If bad credit has made it difficult for you to refinance in the past, this latest drop in interest rates gives you new incentive to try again.
Over the past year, people with bad credit have found mortgage lenders very reluctant to refinance or offer new loans. However if you've applied in the past and found your bad credit made your home loan impossible to refinance, one thing you should understand is that the mortgage industry is in a state of upheaval. This means conditions are changing almost daily, and even people with bad credit should check back from time to time to see if they can refinance.
With the recent drop in interest rates, this might be one a good time to try again.
Defining Bad Credit Refinance Restrictions
What exactly are the limits that bad credit has placed on your ability to refinance? Let's start with your credit score. As attractive as the recent drop in mortgage rates sounds, you probably won't qualify for the best rates unless your credit score is 720 or higher. If you are in a range of 620 to 720, you can qualify, but you will probably have to pay more in interest rates and/or points.
An added wild card is that lenders may require homeowners to have 10% to 20% equity in their homes, so if your home has fallen drastically in value, you may be automatically disqualified.
Ways to Try Again
Even with these obstacles, there are reasons you should keep trying to refinance, even with bad credit. Mortgage refinance is not an exact science, so you may find a break if you are persistent enough:
- Check back whenever interest rates drop. Yes, this causes a rush in application volume, but it also signals renewed confidence on the part of lenders.
- Using Internet resources. There are literally thousands of lenders out there, each one with different policies on making loans to people with bad credit.
- Research government home loan refinance programs. As government agencies grapple with the financial crisis, new policies and programs are emerging all the time.
- Re-apply when your credit rating improves. You should be actively working to repair your bad credit, and with time and effort you can make it over the mortgage refinance threshold.
- Check in with lenders once a quarter. Lenders have been overwhelmed by recent conditions, but with time, things should get more manageable.
As your credit improves and lenders get over the backlash against less-than-perfect mortgage applications, you will eventually drop into someone's "acceptable" bucket. Keep trying.
About the Author
Richard Barrington is a freelance writer and novelist who previously spent over twenty years as an investment industry executive.
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