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Is Mortgage Refinance Approval Possible With Poor Credit?
By EchoBay Loans Staff Writer

The simple answer to this question is yes! In the world of lending, there are a variety of lenders who specialize in different types of mortgage loans. Some of these lenders focus solely on helping borrowers who have poor credit.

Mortgage refinance is easier
Mortgage refinance loans are easier for poor credit borrowers to obtain than other types of loans. Homes are more likely to appreciate in value providing a greater cushion to the lender in the case that you default on the loan. In the case of an automobile loan, the collateral (your car) is losing value every day. If you default on a car loan, it is very likely the lender will lose money. Because property values generally increase over time, the lender assumes less risk as time goes on with the loan amount decreasing while the value increases.

Protecting the lender's investment
Your lender's primary concern is whether or not you will make timely payments throughout the life of the loan. With poor credit history, the lender has to take extra precautions to protect its' investment. These extra precautions generally center on higher closing costs, higher interest rates and lower loan to values (LTVs). The LTV is calculated by dividing the debt owed on the home by the value of the home. Many lenders try to stay in the 80-90% range. In the case of poor credit, the guidelines may call for an even lower LTV.

The difference in interest rates between a good credit mortgage refinance loan and a poor credit one could be as much as 3-4 points. Because there is a higher level of default with a poor credit borrower, the lender charges higher fees and rates to make the loan worth the risk involved.

How can you improve your credit?
There are three credit reporting agencies that gather information about your financial history - Experian, Trans Union and Equifax. Your lender generally uses just one of these agencies. Each year, you can request a free copy of your credit report from each of the agencies. It is important to do this to be sure that no erroneous information has been added. If you do find errors, each company has a process available to clean up any misinformation.

Improving your credit takes diligence and patience. Your credit history generally appears on your credit report for seven to ten years. But it can be improved over time. The most important thing is to pay your debts on time every month from this point forward. If for some reason you are going to be late with a payment or cannot make your payment, contact your creditor. Many are much more understanding if the borrower makes the phone call rather than the creditor having to go to the trouble of calling.

If you have a great deal of credit card debt, try to consolidate everything to one credit card or into one loan. After you have done this, cancel all of your other credit card accounts. When you have many credit card accounts, even with zero balances, it can lower your rating and you can be seen as more of a risk because of the amount of credit you have available to you.

If there is a specific reason for the bad credit such as a divorce or medical condition, most of the credit reporting agencies will add a statement to your credit report to advise those who pull your credit of this. While it does not affect your credit rating or history on the report, it does give the lender some insight into the situation.

If your credit problems are more than a year old, it is possible to improve your chances of better rates by providing proof of timely payment over the past year. When you can show the lender that you are now acting financially responsible, they may be slightly more lenient in their lending guidelines.

When researching a mortgage refinance loan for poor credit, be sure to look at all of your options. Be sure to be diligent about paying your bills on time in the future to protect what is many times your most precious financial asset - your credit rating!


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