Many troubled home owners think they cannot refinance with bad or average credit scores. Actually, there are options that you may not know about. Statistics show as of December 2017 that 15% of homeowners who refinanced had credit scores below 650. So, it is possible!
If you have some black marks on your credit report and want to refinance, here are some good options for your consideration.
The best place to begin your refinance search is your own lender. If you have been making your payments on time for at least a year, you might be more able to refinance with your own lender than you believe.
Tell your lender that you are searching for refinancing options and are considering them. In some cases, the bank may be motivated to keep your business and allow you to refinance even with an average credit score.
The most important thing in your lender's eyes is that you have paid your mortgage on time. Other negative credit items such as credit cards may not be as important. It's the big ticket items such as mortgages and car loans that matter the most.
The Home Affordable Refinance Program is the refinancing program by HUD for people who are in trouble on their mortgage. The US government wants to do what it can to help people who are underwater on their homes especially. This means you owe more on the home than it is worth, and this makes normal refinances almost impossible.
HARP does not require you to have a credit score, and lenders will not usually pull your credit.
However, you must have made no late mortgage payments in the past 180 days, and no more than ONE in the past 12 months. This program is NOT for people months behind on their mortgage.
This program was supposed to end in September 2018 but has been extended through the end of 2018.
If you have an FHA mortgage and have been making your payments on time, FHA could have a hell of a deal for you – how about a refinance to a lower rate with no credit or equity requirements?
This program is only for people who want to get a lower rate and a lower payment. You cannot get cash out with this program. Also, there is a net benefit test; you must be able to cut the interest rate by at least .5% or reduce the repayment term.
You do not need to have a home appraisal, there is no credit or employment check. Even if you have a bankruptcy, it does not matter. But you do have to be current on your loan. Only one late payment is allowed in the past year and that payment may not have been late by more than 30 days.
As there is no credit check, you get whatever the current FHA rate is. If it is .5% lower or more, you can refinance.
If you do not have a loan backed by FHA, you still may be able to get an FHA refinance. But you would need to have a credit check. The typical credit score requirement is 680 to 690, but home owners with a lower credit score have been approved. The absolute minimum is 500. If you have a score under 580, you have to have at least 10% equity in the property.
This program requires you to have no late mortgage payments in the past 12 months, and no bankruptcies within two years, or foreclosures within three years. Also, the debt to income ratio cannot be higher than 43%.
Another option with average to bad credit is a 'portfolio loan.' These are private home loans and are not sold to Fannie Mae or Freddie Mac. Lenders perform their own underwriting and set their own credit and other standards. So, the requirements can vary widely from lender to lender.
To find out if you can get one of these loans, you need to go to a mortgage broker or full-service mortgage lender who can shop your possible refi to various portfolio lenders.
If only one person on your home loan has bad credit, remove him or her from the application. But this only will work if you have good credit AND have the income to qualify for the refinance on your income alone.
The bottom line is, you have options to refinance your home loan even if your credit is not so great. Talk to a lender today to find out what the best options for you are.
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