A bad credit rating can often feel like the ultimate handicap in the realm of finance. When investigating refinancing options for a home mortgage, that handicap is felt all the more intensely. However, a bad credit rating does not mean refinancing is not a possibility. In fact, plenty of borrowers have managed to secure their refinanced home mortgage loans in spite of bad credit, and following these guidelines is a great step toward securing a solid financial future.

Step #1

Save Up

There will always be start-up and/or closing fees for any refinance deal, and additional costs are more than likely to pop up, as well. Putting money aside should always be the first step in attempting to improve any financial situation. Additionally, if a bad credit rating is a result of a recent bankruptcy filing, hold out on refinancing for a few years and continue to focus on saving up. Bankruptcy is simply a big red-flag for lenders, and it can force them to deny an application almost immediately. Reevaluate the refinancing options at hand after some money has been reserved.

Step #2

Shop Around

Websites such as LendingTree.com or Eloan.com offer good opportunities for those with bad credit to compare rates among home mortgage lenders. Always check reviews and reputations of lenders, and never succumb to the belief that a bad credit rating automatically leads to having to deal with bad lenders. Be wary of any deceptively low mortgage rates being advertised, as these are often merely introductory and can lead borrowers into acquiring more debt in the long run. A similar tactic will be used to advertise an adjustable rate mortgage instead of a fixed rate mortgage, as well, which will only lead to further financial distress on the borrower’s end.

Step #3

Know Your Rights

TILA, the Truth in Lending Act, has been put in place by the United States government to protect people borrowing home mortgage loans. All information regarding the loan and refinancing details must be disclosed by the mortgage lenders, including monthly payments, loan terms and costs, and the identities of the lenders themselves. In short, this law has been created to allow borrowers to shop around for the right lender. It is extremely important to know that if a borrower does not receive a TILA disclosure form from a lender, the time to rescind the agreement increases from three days to three years. Know your rights!

Step #4

Lower Interest Rates

It truly pays to try to lower existing interest rates. By putting forth a larger initial down payment, interest rates can possibly drop by a full percentage point, which will significantly lessen the time it will take to pay back the loan. Try doing the math, or talk with a lender to determine how big an increase in payments will be necessary to achieve these lower rates in interest. The amount of time that can be shaved off by these larger payments is often quite baffling, and well worth the extra effort.

Bad credit can be a heavy burden, but it is certainly not the end of financial security. The decision to refinance a home mortgage is entirely up to the individual, and a bad credit rating will by no means rule out refinancing as an option. Do the research outlined above, and, if refinancing is still not an option, consider mortgage modification, which will adjust the existing mortgage loan as opposed to refinancing. Even in the face of a bad credit rating, there are always options.