You may have a low credit score but is your credit rating really that bad? Any delinquent activity will lower your score but may not be as important to a mortgage lender. A bad credit refinancing lender will not only look at your FICO score but will review the underlying details that contributed to the score. For example, your credit reports detail a history of late payments on your car, credit cards, and mortgage payments. Late payments invariably decrease your credit score but the lender would be more concerned about a 30 day late mortgage payment than a 60 day late car payment or a 90 day late credit card payment. Therefore, if you have a poor credit score but have always paid your mortgage on time, it's possible that your chances of refinancing a home with bad credit improves.
A lower loan-to-value (LTV) ratio is critical to a successful home refinancing with bad credit application. The LTV ratio is computed by dividing the home mortgage amount by the home's appraised value. For example, let's consider two scenarios. In scenario 1, the mortgage is $175,000 and the assessed value is $200,000, resulting in a LTV of 87.5%. In scenario 2, the mortgage is $125,000 and the appraised value is $200,000, resulting in a LTV of 62.5%. In this case, scenario 2, with the lower LTV, would likely be offered a lower interest rate and better terms than scenario 1.
Why do you want to do a home refinancing for bad credit? There are essentially a couple of reasons why someone with bad credit wants a home mortgage refinancing. The first is to reduce the monthly payment by getting a better (lower) interest rate or extending the term (ie. from a 20 year term to 30 years.) The second is to withdraw some cash from the home equity to pay off bad debts (ie. high interest bearing credit card balances) or to complete home improvement projects. Lenders like to hear that the proceeds from the refinance will be used to eliminate other debts so if that is your purpose, make it known.
Everyone's situation will be different as there are varying degrees of "bad" credit. The above discussion gives you an idea of some of the factors that lenders consider. There are many lenders that specialize in bad credit home refinancing so make sure you shop around for the best package for you. You can obtain convenient online mortgage quotes to do your comparison. Or you can consult a bad credit mortgage broker whom will know all the lenders who caters to bad credit clients. Be alert and choose to work with only legitimate parties.