Make Home Refinancing a Top Priority

By Barbara Marquand
Mortgage Credit Problems Columnist

If you're having difficulty making payments on a bad credit mortgage, the first option to consider is refinancing to lower your payments. You can enter your information on this page to get free quotes for home refinancing.

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But if you're underwater on your mortgage, you might already be thinking about other alternatives, such as a home loan modification, a short sale or even foreclosure.

How will these options affect your credit score? That's the big question. Minimizing losses is important because the lower your credit score, the tougher time you'll have in getting good deals on mortgages, car loans or credit cards in the future. Some employers even check job applicants' credit scores, figuring that people who handle their finances responsibly will do the same with their jobs.

Why Home Refinancing Should Be Your Top Choice

The number of points lost depends on the consumer, according to FICO, which produces the commonly used FICO credit score. People with high credit scores have more to lose than people with low scores. According to FICO's rough guide, a person with a 680 credit score would lose 85 to 105 points after foreclosure, and a consumer with a score of 780 would lose 140 to 160 points from foreclosure.

Unfortunately, a short sale or deed-in-lieu have the same impact on your credit score as foreclosure, FICO says, although that doesn't mean one of these might not be a better option for you. With a short sale, the bank agrees to forgive the difference when the home is sold for less than is owed, and with a deed-in-lieu, the bank forgives the unpaid portion of the loan balance when the borrower gives back the property.

Impacts of Modification for Bad Credit Mortgage

What about a loan modification? FICO says you could lose points if the lender reports you haven't made payments as originally agreed, but a modification also might not have any impact at all. Loan modification will also enable you to keep your home, so give it a try if you don't qualify for refinancing.

Finally, bankruptcy hurts credit scores more than foreclosure. A consumer with the 680 score would lose 130 to 150 points after bankruptcy, FICO estimates and a consumer person with a 780 credit score would lose 220 to 240 points. FICO cautions these examples are only guides, and results will vary from one individual to the next.

Preserve your credit score by pursuing home refinancing or home loan modification before resorting to foreclosure, a short sale, deed-in-lieu or bankruptcy.


http://www.myfico.com/ / http://money.cnn.com/ / http://www.theatlantic.com/ 

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