Refinancing a Bad Credit Mortgage

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For those with less than stellar credit histories, a bad credit mortgage is sometimes the only means of funding for homeownership. These loans can carry high interest rates and some unpleasant terms, like adjustable rates and rising payments. Fortunately, after a while it is possible to refinance such mortgages into more affordable ones.

Improve Your Credit
The first step in preparing to refinance a bad credit mortgage is to repair your credit score. Improving your score by just fifty points could land you a much lower interest rate which could lower your monthly payment by hundreds of dollars. One of the most important ways to do this is by making all of your home loan payments on time, as well as any other credit payments you have. Payment history is the largest determining factor in your score. If you have high balances on your credit cards, paying them off or at least paying down a sizable chunk of that debt will also positively affect your score. It does take time for changes in your financial behavior to show up on your credit report, sometimes up six months or even a year, so be patient in your quest for a refinance.

Provide Documentation
Once your credit score is significantly higher, you can make yourself an even more appealing refinance candidate by collecting all the important documentation that will be required. This means proof of a steady, sufficient income based on W-2s or pay stubs, proof of your assets as shown on bank account statements, and documentation of the equity you have in your home (most lenders require that you have at least some equity in your house). Lenders will be impressed that you have done your homework and have evidence that you can afford the new loan you are requesting.

Shop Around
When you begin the refinance process, you will get the best deal if you talk to several different lenders and compare their rates and terms. Even though your credit still may not be perfect, you can make the lenders compete for your business by shopping around. Each one will offer slightly different interest rates, closing cost fees, and loan program options. Checking out several lender options will ensure that you obtain the biggest savings on your new mortgage loan.