Top Tips to a Bad Credit Mortgage Refinance

Even if you have bad credit, it's still possible to get a home mortgage refinance. The lending market isn't quite what it used to be, and loans aren't quite as easy to get as they once were. If you are willing to do a little more work you too can get a loan, regardless of your current credit situation.

If you have a credit score under 620, you're probably looking at dealing with the sub prime market. The sub prime market has been rocked in 2007 with tons of news of lenders going out of business or scaling back their lending operations significantly.

Not to worry, there are still plenty of lenders offering loans to borrowers with less than stellar credit. Other factors such as down payment size, or length of time at job can be used to help you qualify.

Disadvantages Of Sub Prime Mortgages

Even though you can get a subprime loan, it doesn't mean that you should. There are some disadvantages of getting a subprime loan, and you should weigh the risks versus the rewards.

The main issue with sub prime loans is the higher than normal interest rate. You can often pay up to $400 a month more on a $200,000 mortgage compared to a normal borrower. Most subprime loans are also adjustable, that means the payments can change or adjust. What that means is that over time, you can find your payments go higher and higher making the mortgage unaffordable.

Many homeowners find themselves after a few adjustments of their mortgage, paying almost double what the introductory rate was. Making it almost impossible to keep current with their payments.

Many subprime mortgages are also saddled with prepayment penalties. What that means is that if you sell your home or get a refinance within the first few years of the mortgage, you could have to pay a penalty to the lender of up to 4% of the mortgage amount. This isn't as much of an issue if you plan on staying in your house, but sometimes things change.

Another option for many borrowers with credit issues is the FHA mortgage. The FHA mortgage is a mortgage that is backed by the US government. It offers a significantly different choice from the other subprime mortgages. There are higher paperwork requirements which is about it's only issue. The interest rates are comparable to prime rates, and they typically don't have prepayment penalties.

Ultimately the best choice would be to work on your credit and get your credit score above 620 so that you can qualify for a prime mortgage, and not be faced with such difficult decisions.

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