Mortgage Loan Refinance Options for Bad or Damaged Credit Borrowers

 

Two products of the recent economic turmoil has been the widespread loss of jobs and the resulting damage to the credit rating of many individuals.

If you are a homeowner looking to refinance but have damaged credit, you still do have a few options available to you. However, many of your options will depend on the severity of your credit and financial situation:

• Have you had a lot of payments on your mortgage the past 12 months that were over 30 days late?
• Are you current on your mortgage loan or delinquent?
• Have you declared bankruptcy the last three years?
• How far below 620 is your FICO credit score?
• What does the rest of your credit history for the past two years look like?

How to Raise Your Credit Score

If you are not currently in foreclosure or default, your best option for a refinance would be an FHA loan. However, FHA loan guidelines require a minimum FICO score of 620.

Depending on how far below 620 your credit score is, it may take you a couple of months or a couple of years to bring your credit back to that level. For credit repair tips and strategies for increasing your FICO scores, you can use the guide at CreditRehab411.com.

If your low credit score is due primarily to late payments and collections in years past, you can quickly start raising your scores by taking a few simple steps:

• Pay down credit cards. Your balance on revolving accounts weigh heavily on your FICO scores, especially if your credit lines are “maxed out” or near their limit. But do NOT close those account, as active account are much more influential than closed accounts.
• Don’t bother with old collections. If you have old, small collection accounts on your credit report that are not bothering you, then you shouldn’t bother with them. Ironically, FICO scores tend to go down when you pay off old collection accounts. Strange, but true.
• Create positive credit. Start re-establishing positive credit history by paying everything on time. Plus, look at secured credit cards to start adding more positive entries into your credit history. You’ll take a small hit the first couple of months because of the new accounts, but as long as you take care of them, they should start pushing up your scores shortly.
• Take care of your mortgage. Your mortgage loan payment history is the most important element in the eyes of your mortgage lender and loan underwriters. Pay them on time and keep current, with the aim of building up a solid year of timely payments.

Fighting Foreclosure

If you are looking to refinance in order to avoid foreclosure, you do have options. It won’t be easy, but saving your home is probably worth the effort.

The Refinancing Underwater Mortgages article reviews a couple of programs designed to help homeowners refinance or modify their mortgage loan in order to avoid foreclosure. In addition, you may want to check out the library of informative articles on fighting foreclosure at HomeHope1.com.

Income Stability

Note that even though there are opportunities to get beyond damaged credit, the fact is that if you are currently unemployed or have significantly reduced income, your options will be few and far between. The simple truth is that if you can’t afford the payments on your home, there is little sense for mortgage lenders to take a risk on you.

Reverse Mortgage Option

There is one, very big EXCEPTION to the above issue regarding income.

If your property does have equity and you (or one of your co-owners) are over 62 years of age, you may qualify for a reverse mortgage. The beautiful thing about a reverse mortgage is that you NEVER have to make a payment on the reverse mortgage loan — as long as you live in it.

Some homeowners who aren’t old enough to qualify have managed to save their home by adding a parent or older relative who lives with them, and then using the reverse mortgage program to refinance the property. But it’s a risky move, so make sure you know what you’re doing before you try it.