Financial Planning

Can You Refinance a Mortgage With Bad Credit?

Is refinancing a mortgage with bad credit a good idea? For many, the answer is yes. If your home has a high fixed rate or low interest rates, it makes sense to look at refinance as an option to extend your home loan or lower your monthly payments. There are some borrowers who find that they need a larger loan to consolidate debt or pay off other debts and with bad credit, this can be hard to do. There are alternatives though.

Home equity loans

Some lenders will consider you for a home equity loan if you have less than perfect credit. They will take your current home as collateral. The risk is lower since you are offering your home up as collateral, but the interest rates are higher than a standard mortgage.

Personal loans

Some lenders will give you a personal loan to pay off your existing mortgage. While this can be good for people who are in a financial bind, many bad credit borrowers will not qualify. This can be a great option for some people, but again, you must check with the individual lender.

Loans from family and friends

You may be able to get a small personal loan with poor credit from a close friend or family member. You will still have the same interest rate and terms as a regular mortgage.

Credit checks

Many lenders make a credit check on potential borrowers. If your credit score is low, they will most likely reject you. While this may not bother you now, if you are in the market for a house in the near future, it may be a serious turn off.

Home Equity Loan

A home equity loan is similar to a conventional loan, except that you are turning over the value of your home (including any existing loans) to the lender. This interest rate is usually higher than your current interest rate, and you will also be responsible for any property taxes, homeowners insurance and normal maintenance costs associated with owning a home. You will most likely need to provide a credit check.

Bad Credit Personal Loan

A bad credit personal loan is a short-term loan typically for a few months to a few years. It requires no type of credit check and is fairly easy to qualify for. Most often, a bad credit personal loan is used for debt consolidation, emergencies or vacationing. They can be used anywhere else, however, as long as you own a home.

In order to help improve your credit score, do a little research online. There are dozens of mortgage lenders willing to offer competitive rates on bad credit mortgages. Refinancing a mortgage with bad credit is an excellent way to quickly pay down debt and improve your credit rating. Refinancing a mortgage is one of the smartest ways for homeowners to improve their credit.

Personal Loan

If you don’t own property to use as collateral, you can still get a mortgage with bad credit by getting a personal loan. Personal loans are great for people who need extra money to get through a tough time. Be careful, though, as these loans will carry very high interest rates.

Home Equity Loans

Home equity loans are a little more tricky than other kinds of loans. If you have a low credit score, however, this type of refinance may be your best option. You can borrow against your home’s equity and try to get yourself out of debt. If you do well with this type of refinance, you could end up saving your home by never having to pay monthly payments or interest fees.

You can learn more about how to refinance a mortgage with bad credit by registering for a free mortgage guidebook. This type of resource will give you the tools, information, and support you need to get started on the right foot. When you’re ready, there are plenty of bad credit refinance companies that are willing to help. Just be sure to do your research and find a company that offers solid, reliable advice. The good news is that even if you’ve got bad credit, there are ways to make over-the-top debt consolidation and debt settlement deals possible.

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