Having bad credit can make it difficult to get some types of credit, but it will not be impossible to refinance your current home loan.
A bad credit home mortgage loan will most likely come with a higher annual percentage interest rates and lender fees. However, refinancing your current mortgage with bad credit may actually be able to help your current bad credit situation and still save you money on a monthly basis.
If you have multiple credit card accounts, car loans and other types of loans with high interest rates and monthly payments, it can benefit you to consolidate them into your mortgage. For example, a bad credit home loan mortgage debt refinance at 10% is still better than paying 22% on your credit cards. This can potentially save you hundred of dollars each month if not more.
With the lower payments due each month, it will help your monthly budget and get you back on track to restoring your credit history. This will eventually lead to a better credit score and you will then be able to take advantage of lower interest rates in the future.
Making a determination on your eligibility for refinancing a mortgage is similar to the approval process that you had to go thru with your first mortgage. Lenders will take into account your assets, income, credit score, the current value of the property, other debts and the total amount you want to borrow against your home. If your credit rating has made a improvement, you may be eligible to refinance a loan at a lower interest rate. On the other hand, if your credit rating is now lower than when you got your first mortgage, the new loan may come with a higher interest rate.
Mortgage lenders will take a look at the loan amount you have requested and the current home value, that is determined from a property appraisal. If the loan-to-value (LTV) ratio does not fall within their lending guidelines, they may not be willing to make a loan, or they may offer you a mortgage loan with less-favorable terms than the one you already have.
If housing prices fall, your home may not be worth as much as you owe on the mortgage. Even if home prices stay the same, if you have a loan that includes negative amortization (when your monthly payment is less than the interest you owe, the unpaid interest is added to the amount you owe), you may owe more on your mortgage than you originally borrowed. If this is the case, it could be difficult for you to refinance your current mortgage.
The federal Housing Authority has permitted streamline refinances on insured mortgages. The basic requirements of a streamline refinance are that the mortgage to be refinanced must already be FHA insured, the mortgage to be refinanced should be current and not delinquent, and the refinance is to result in a lowering of the borrower's monthly principal and interest payments. No cash may be taken out on mortgages refinanced using the streamline refinance process.
In the constant changing mortgage marketplace it is best to speak with a mortgage loan specialist to find out the current available options to you.