Bad Credit Mortgages and Mortgage Refinance

Obtaining a mortgage can be a very daunting task for even the most credit-conscious of consumers, so for those with poor credit and/or a difficult current financial situation, it may seem even more difficult. Fortunately for such borrowers, however, it has never been easier to get a mortgage with less-than-perfect credit.

Perhaps because it is so easy to tarnish one’s credit in today’s financial market, mortgage providers are becoming increasingly more willing to lend to individuals with low credit scores. However, such individuals will not be able to obtain mortgages at the same rates as others, and they also must tread very carefully upon mortgage-shopping.

Attaining a mortgage not only is possible for many individuals with poor credit, but such action actually might be helpful for one’s credit score. Mortgages can be helpful both for consumers either with a history of poor credit who would like to purchase a home, or for those who already own homes but would like to refinance.

Bad Credit Mortgages

If you are ready to buy a home but have bad credit, also known as ‘adverse’ credit, then you must do your homework. Your first step should be to contact an independent mortgage broker. Ask him or her for recommendations of mortgage lenders who will consider lending to someone with your credit situation.

It is very important that you do not apply to lenders who will reject your application automatically, because such behavior further harms your credit. All ‘hard’ inquiries into your credit, or those inquiries that are used to determine whether or not to extend credit to you, negatively impact your credit score. If you apply for credit at a number of different lenders at once, then your score will drop and you may appear desperate to other lenders.

Furthermore, this can lead to what is known as a “rejection spiral”. Creditors will not lend to you because other creditors have not lended to you, and so on, and so on.

Once you have your list of creditors whom you should at least consider, then ask these lenders about your options for attaining a mortgage. Be certain that they will not count your queries as a “mini application” however. In such a situation, a lender will perform a credit check on you even if you were not intending to apply officially.

As alluded to above, there are many lenders who will offer mortgages to individuals with poor credit nowadays, and these include traditional banks and credit unions. For this reason, you should be weary of any companies that specifically target people with bad credit. Such companies might actually be in the business of benefiting from very high interest rates.

If you have bad credit, you still should be able to get a mortgage to purchase a home. However, your interest rate certainly will be higher than it would be otherwise, and some lenders will charge you more than others.

Once you secure a mortgage, you have an opportunity to start repairing your credit by making timely, reliable payments to your lender.

Bad Credit Refinancing

If you already have a mortgage on a home and are looking for a way to simplify your current financial situation and to reduce monthly payments to debtors, then a mortgage refinance might be just what you need. After utilizing the tactics above for finding a lender, you should have no problem refinancing.

By refinancing through a home equity loan or home equity line of credit, you can borrow money against the equity built up in your home. This money can be used to any purpose, including to pay off other debts. Consolidating in this way can simplify your finances and may get rid of other high interest rates.

Also through refinancing, you may have the opportunity to extend the repayment period of your mortgage thus lowering your monthly payments. Lower monthly mortgage payments free up money for you to use for other purposes – like to pay off other debts.

Paying off debts is a sure-fire way of improving your credit, as is simply have fewer accounts open. Mortgage refinances can help on both counts.


What about No Credit?

When an individual is described as having no credit, or ‘young credit’, this means that he or she has not used enough credit in the past to indicate whether or not he or she is “creditworthy”. It is imperative for people to build their credit histories slowly but surely so that they can have decent credit extended to them when the need arises – such as in an emergency situation.

Still, it is considered much better for you to have no credit than to have bad credit. After all, you have not shown that you are irresponsible with credit – rather, you have not yet shown anything at all.

Obtaining a mortgage provides you with an opportunity to build your credit. If you can wait to embark on such a large debt, however, then you may want to choose other types of debt to establish your credit instead. Because lenders do not know how risky of a borrower you are, you will be given a very high interest rate on your mortgage.

Conclusion

You can obtain a mortgage from a legitimate lender even if you have bad credit, but the rates and conditions associated with it will not be as good as you would like. Still, mortgages in and of themselves, as well as mortgage refinances, actually can help your credit. If you are in the market for a mortgage or a mortgage refinance, then do not let bad credit (or no credit) hold you back.