Can a Mortgage Be Refinanced With Bad Credit?

 

Refinancing a mortgage can be financially beneficial for homeowners, especially now as interest rates for mortgages have been declining to historically low rates. For homeowners who are interested in refinancing, an often asked question is whether or not refi is possible if a person's credit score is low. While having bad credit definitely has an impact on the refinancing process, this impact does not necessarily have to be a negative one. Here are a few alternative refinancing options and ways to improve your bad credit score so that you may qualify for a desirable mortgage refinance rate.

Alternative Refinance Programs and Loans

If you are looking to refinance your home, but you are worried that having bad credit may limit your ability to do so, the first step is to talk with your lender about your situation. Being honest about your credit is important, as you are likely not the first person your lender has talked to that has been in this particular dilemma. Due to this, lenders often will provide alternative types of loans and programs that allow those with bad credit to still be able to refinance their homes. Some of these alternate loan programs include:

 

1. VA Loans: With these types of loans, homeowners have access to a different type of refinancing where credit/appraisal checks are unnecessary and rolling œclosing costs into the total of the new loan is permitted. 
2. FHA Streamline Refinance: This is a form of refinancing that can be available to those who are using FHA loans. Information related to a person's credit score is not necessary. Income information may not need to be included either. Not much paperwork needs to be filled out and the process is highly streamlined.
3. Other special refi programs could be offered by your lender, depending on your situation.

Will Adding a Co-Signer Help?

While adding a co-signer may help you qualify by adding additional income and improving debt to income ratios, adding an individual with good credit does NOT help from a credit standpoint because lenders are required to use the lowest credit score for determining the œsoundness of a loan request. It is possible, however, that one borrower (such as a spouse) has good credit and has sufficient income to qualify on their own. In such cases, you could refinance the loan in that person's name alone but have both names on title to the property.

Ways to Enhance Your Credit Score

If you are struggling with a bad credit score, here are some tips on how to enhance your credit so as to increase your chances of being able to refinance your home:

1. Analyze your credit reports carefully and speak with your lender about ways to improve your score. Most lenders have access to free programs that will help determine how much of a score increase you will get if you make modest changes to your accounts.
2. Ensure all future payments are made before or by their due date. Having good credit is heavily based on being able to make full payments in a timely fashion.
3. Spend within your means. Establish a budget and try not to reach the max out your credit cards. 
4. Lower the amount of money that you can spend on a particular account.
5. Refrain from opening up any more credit card accounts.

Refinance Through Butler Mortgage

For buyers in the Central Florida area looking to purchase a home or refinance their mortgages, Butler Mortgage is here to help. For over 25 years, we have been dedicated to providing valuable guidance and advice related to mortgage lending needs for all of our clients. For more information about personalized mortgage loan and refinancing solutions, call us at 407-931-3800, or visit our website to fill out our free consultation online form.