A dream home is something everyone wants. Whether you have a good credit score or a bad one, owning a dream home makes you feel good. Nowadays, getting a loan for a home is not that hard. Banks and lenders do look at your credit score but having a bad one doesn't mean that you won't get your loan. It just means that you will be able to get it but at a higher price. There is a strategy around this which you can employ a few years after taking out the original loan. This strategy that would help you decrease your financial burden is called bad credit home loan mortgage refinance.
As the name of the strategy implies, it is a refinancing of your original home loan while you stand as a person with a bad credit score. If you are not familiar with refinancing, it is the process of replacing your original mortgage with a new loan having a more favorable rate and terms with the same property used as collateral. In any case, the end goal of refinancing is to help you get a lower monthly payment or shorten/lengthen the tenure of the loan.
One of the most important questions before employing this strategy is to ask yourself, when should you refinance? When should you get a bad credit mortgage refinance loan? The answer lies on whether you are qualified for refinance or not. There are four major factors. The first one is home equity. Your home should at least have a 10% home equity before the lenders would even think about approving you for a refinance. Lenders would also look at how you have been paying off your current loan. Do you have any late payments in the last 12 months? Or have you been vigilant in making sure that you pay off the monthly dues in time?
Your credit score is also taken into consideration and compared against your credit score when you last took out your original loan. Are you making the effort to improve your credit score? If not, the lenders will think twice before giving you a refinance. Last but not the least, if you want to refinance your mortgage with bad credit, make sure that it would benefit you! Follow what they call the "2% Rule" which states that you can enjoy the benefit of a home refinance if your mortgage refinance rate is 2% lower than that of your current loan.In a nutshell, refinancing your current mortgage takes a bit of deep thinking. It should make sense by making sure that you are doing it for the right reasons and at the right time. More importantly, mortgage refinance for bad credit should only be done if it puts you in a better position financially