Getting Your Mortgage Refinanced Despite Bad Credit

December 5, 2009 by Jim Plycki
Filed under Mortgage

Due to the failing economy and the credit crisis that is now happening, banking loan officers have had to keep a tighter watch on who the allow to qualify for loans. In most cases, a less than perfect credit score can mean that a person is not able to obtain a loan. But some special cases negate this rule. Bad credit mortgage refinancing is one of the most common exceptions.

The simple fact of the matter is that many banks have foreclosed on a large number of homes only to find that they must take a huge loss when reselling the properties to get them off the books. This means that most banks will be glad to work with homeowners who are genuinely trying to find a way to avoid defaulting on their mortgage loan.

For the person who may have lower credit scores due to late payments and bad credit card debt, it is possible to refinance a mortgage based on the relationship they have developed with the bank. Many times a mortgage company is willing to refinance a mortgage in order to give more reasonable interest rates and/or extend the repayment terms to lower a customers payments based solely on this relationship, and without taking credit scores into consideration.

A person with poor credit could be a better loan candidate if they voluntarily enter a credit counseling program. A prospective borrower will gain favor by discovering ways to reduce their debt without resorting to bankruptcy.

The lender will also want to find out how the borrower plans to use any excess money they get from refinancing. If the money is going to be used to pay off high interest debts, such as credit cards, or to make improvements to the home that will have a positive impact on its value, most banks will be happy to lend the money. They react favorably if you make an effort to become debt free, even if you temporarily enlarge your debt, albeit at better terms.

Today may be the most advantageous time to apply for a bad credit mortgage. Solely because banks are worried about the debts that are being defaulted on and can not be collected. Due to this, there are cases where the bank is willing to step out of its comfort zone and refinance and have to accept a longer repayment period than expected. They feel that at least they are still getting back the full amount of the loan, and not having to lose money. They also collect more interest on the money, so it is really a win/win situation for them.

The two key points to consider in applying for bad credit mortgage refinancing is how the money will be used and how the borrower’s ability to repay will be improved.

In most cases, refinancing is done to take advantage of lower interest rates, to extend the payment term and lower the payments, or to gain cash that can be used to improve the property or pay off other high interest debts that may interfere with a person’s ability to pay back the bank loan. If one can provide satisfactory answers to these questions, the odds are good that refinancing can be arranged despite a bad credit score.

Jim writes about subjects like mortgage refinance and mortgage refinance on his site.