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Zhi Finance » Refinancing of bad credit

Refinancing of bad credit

Many years ago, it was very difficult for those with bad credit to get a mortgage in the first place. However, today there are so many lending options and so many ways for lenders to protect themselves that those with bad credit can find not only the right mortgage, but also attractive refinancing options.

Those with bad credit should carefully consider whether refinancing is currently the ideal option for them, but the process is no different for them than it is for those with good credit. Those with bad credit who want to learn more about refinancing should consult a mortgage consultant who specializes in mortgages for people with bad credit. In addition, homeowners should carefully evaluate their credit score and whether it has improved. Finally, homeowners should carefully evaluate their options to ensure they are making the best decision.

Consult a mortgage consultant

People with bad credit are advised to consult with a mortgage consultant. These homeowners may have some understanding of the refinancing process, but their situation warrants consultation with an industry expert. This is important because mortgage advisors who specialize in obtaining mortgages and refinancing for people with bad credit are likely to be very knowledgeable about the types of options available to homeowners.

When consulting a mortgage consultant, the homeowner should be completely honest about their financial situation and should provide the expert with all the information he needs to assist them in finding an ideal refinancing deal. Being completely honest will be very helpful to the mortgage advisor in assisting the homeowner in the best way possible.

Consider whether your credit has improved

Homeowners with bad credit should carefully consider whether their credit has improved since the initial mortgage. Homeowners who have documented proof of past credit scores can compare those scores to their current value. Every citizen is entitled to a free annual credit report from each of the major credit reporting agencies. Homeowners can obtain these reports for comparison to previous credit scores. Blemishes on a credit report, such as bankruptcy, delinquent or missed payments and other violations, do not remain on a credit report.

These blemishes are usually removed from the credit report after a certain amount of time. The amount of time a violation remains on the report is proportional to the severity of the violation. For example, a bankruptcy will remain on a credit report for much longer than a late payment. When checking credit reports, homeowners should consider the overall credit score, but also note whether previous violations were removed from the credit report in a timely manner.

Carefully evaluate refinancing options

Once a homeowner has made the initial decision to refinance a mortgage, they should begin to consider the many options available to the homeowner in the refinancing process. Most homeowners mistakenly believe that the one factor in the refinancing process over which they have no control is the interest rate. While this interest rate depends heavily on the homeowner’s credit score, even those with poor credit have the ability to lower their interest rate by purchasing points. A point usually equals 1% of the total loan amount, which may translate into 1/4th of a percentage point of the interest rate. When deciding whether to purchase points, homeowners should carefully consider how much time it will take for the homeowner to recoup the cost of purchasing points. This will help determine if it is worthwhile to purchase one or more points at the time of refinancing.

Homeowners also have choices when it comes to the type of loan they choose when refinancing. Common options include fixed-rate mortgages, adjustable-rate mortgages (ARMs) and hybrid mortgages. Fixed-rate mortgages have interest rates that remain the same, ARMs have interest rate adjustments that are fixed for a period of time, and hybrid loans have interest rates that can be adjusted for the remainder of the loan term.