Bad Credit Mortgage Refinance Solutions

by Anita Vasquez

I suppose I could think of a few reasons a person would be trying to refinance their mortgage after they have bad credit, but I’d guess the biggest reason would generally be that they’re in over their heads and they’re trying to lower their payments.

If this is you – the seeker of the bad credit mortgage refinance – you need to have a few things clear before you start this process. You also need to have very realistic expectations about what the outcome could be.

If you’re looking to refinance because your payments are just too big and you’re starting to fall behind, working with your current lender seems like the wisest choice, but they’re often surprisingly stubborn or just plain unwilling to talk about restructuring your loan so you can keep your credit intact and also keep up on your payments. I knew of a family whose house payment was overwhelming them. When they contacted the bank to see if there were options that would help them avoid foreclosure, the bank said “just make whatever payments you can and we’ll get in touch with you.” They realized the bank wasn’t going to work with them, so they went ahead and just quit making their payments altogether. Sure, they get to skip a few mortgage payments while the bank is processing the foreclosure paperwork, but their credit is ruined.

I’d say it’s much wiser to walk away from that bank if they don’t want to work with you and do whatever you can to save what’s left of your fico score through a refinance mortgage with bad credit.

I’ve heard from people in this situation that it’s usually a good idea to try to work with a local lender when you want this kind of refi. They have a vested interest in the strength of the local real estate market, and they know you’re going to talk with your friends about whether they were willing to help you out or not. Having that kind of leverage will help you when it gets down to the nuts and bolts of whether you’ll qualify.

The first question they ask is going to be “why aren’t you working with your current lender to refinance the house?” I’d just be completely honest with them and say “We’re trying to save our credit and they don’t want to work with us. We need to find a lender who can figure something out with us so we can keep the house and still make our payments.” That kind of honest will actually go a long way.

Yes, you’re going to have to go through the standard underwriting and qualification process from there, and your missed payments are going to hurt you. But if you have some equity and enough income to handle the new payment, you just might be able to pull a bad credit refinance off.

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