Bad Credit Mortgage Refinance

Bad credit mortgage refinance story is very common today. As many people struggle with high gas and health care costs, bad credit and need for mortgage refinance go hand in hand. Suppose you have bad credit and you pay mortgage which you need to refinance. What are your options? Well, every "bad credit mortgage refinance" situation depends on several factors. These factors described below make up your credit rating.

Will bad credit ruin any chance to refinance your mortgage?

How bad your credit really is? When it comes to mortgage, the potential lender looks not only at the credit score, or rather at how bad your credit score is, but on the very factors that made the credit score bad. The worst factor is "mortgage lates", which is term lenders use to describe overdue mortgage payments.

Credit agencies rate late payments by 30 day increments, i.e. 30 days late, 60 days late and 90 days late. 60 days is worse than 30 and 90 worse than 60. You can be late on your mortgage payment, car payment, credit card payment, etc. Any "late" is going to significantly lower your credit score, but from the "bad credit mortgage refinance" perspective, having 30 days "mortgage late" on the credit report is worse than having 60 days late credit card payment.

Low LTV is vital for bad mortgage refinance cases

Another major factor is loan-to-value ratio or LTV. LTV is calculated by dividing home mortgage amount by the appraised value of this home. If the mortgage is $100,000 and the appraised value is $125,000, the LTV is 80%. The lower LTV the better are the mortgage terms with all other conditions equal.

Ability to verify your income and assets

A very important factor is income and assets verification. Mortgage refinance with bad credit score gets much easier if the borrower can furnish pay stabs and bank statements.

What is the purpose of bad mortgage refinance?

Finally, the last factor is the purpose of refinancing. There could be three goals when someone with bad credit wants his mortgage refinanced.

• These first two are often called "rate-term" refinance. Borrower wants to lower the mortgage interest rate, which could be quite hard if the credit is bad, and/or change the terms of the mortgage, i.e. from 15 year term to 30 year.
• The third one is the refinancing to take cash out of home equity, which is called "cash out" refinance. The purpose of the cash out is very important. Lenders like when borrowers with bad credit use proceeds from mortgage cash out refinance to pay off bad debt, i.e. high interest credit cards, car loans, etc. Usually bank that gives the mortgage, issues checks directly to the creditors which accounts borrower wants to pay off.

So, the most important thing for any "bad credit mortgage refinance" case is to check your credit rating, to see bad it is, not just how low the credit score is.

See what can you do to repair your credit rating.

See also bad credit home equity loan.

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