Can I Refinance With Bad Credit?

June 8, 2018

Can I Refinance With Bad Credit?

Are you wanting to refinance with bad credit? Refinancing isn’t going to be as easy as it would be if you were a blue chip borrower with a flawless credit file. But, the reality is, people can end up with bad credit for different reasons. There are a lot of lenders out there who respect this fact and are willing to lend money to borrowers with credit issues.

If you are looking to get a better deal with a new home loan or you need to refinance to take advantage of lower monthly repayments or to leverage your loan to help you with other financial goals like debt consolidation or a home renovation – and you have bad credit – read on. It’s true, you may not be able to refinance with major banks. But, there are still ways to refinance with bad credit.

Find a Lender Who Doesn’t Use Credit Scoring

Most of the major lenders use credit scoring to approve loans. This won’t be good for you because it means qualifying depends on your credit. Lenders will still look at other factors like your income and assets, but problems with credit will play a major role in determining whether you qualify or not.

If you apply to refinance and a lender denies your application, guess what? Your credit could get even worse! You don’t want to have multiple enquires and denials on your credit file.

This is why it helps to talk to a mortgage broker or to do your own research and find lenders who don’t use credit scoring. That way, you’ll be more likely to qualify.

Some lenders, such as Pepper Money, Bluestone, Liberty, Victoria Mortgage Group and Keystart do not use credit scoring. When your mortgage application doesn’t depend on your bad credit, you have a better chance of qualifying when you refinance. Some lenders even advertise that they will give loans to people with bad credit. Look for them, but keep in mind, they’ll charge a higher interest rate than what you’d find from the major banks.

Check Your Credit Report

The various companies that you have credit with will add comments to your credit report from time to time. They are not always correct, and mistakes can be made. Look it over and check for mistakes. If you find some, try to work with the company that made the complaint and correct the matter. Then ask them if they will remove the complaint. This should help raise your credit score.

Avoid Lender’s Mortgage Insurance

When you have less than 20% of the Loan-to-Value Ratio (LVR) in a down payment, you will most likely need to get lender’s mortgage insurance (LMI). This could prevent you from getting refinancing because it means that two agencies must go over and approve your loan request: the lender and the insurance agency that provides the LMI. This could greatly reduce the likelihood of getting the financing you want.

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Take Steps to Improve Your Credit Score

Your credit score is based on several factors, but the two biggest factors are whether or not you pay your bills on time and how much debt you have. Make sure that you pay your bills on time to raise your score if there has been a problem with this in the past. Lenders want to see at least a year of on-time payments when they look at your credit file to see that you are a responsible borrower.

You also want to reduce how much debt you have. Getting it as low as you can, preferably down to about 20% of your available credit for non-mortgage debt, will help raise your credit score. If you can pay off a credit card or simply reduce the amount you owe before you refinance, you may be able to turn your bad credit into something lenders will be more willing to work with.

If paying your bills late is a constant problem, one way you could remedy this is to have the bank make your payments for you automatically. In order to help reduce the amount of credit you are now paying off, you need to stop carrying the credit cards with you and get serious about paying off your debt.

Another option is to take out a secured credit card. This is a debit card that you pay for in advance. You do not need credit to get the card, but check to ensure you are getting one with lower fees.

Should You Refinance with Bad Credit?

The difference in the size of your payment, as well as the amount of interest you will pay over the long run, make it worthwhile to work towards getting a good credit score. Over the course of a home loan, it could mean a difference of tens of thousands of dollars saved.

To assess if refinancing with bad credit is the right option for you, it may be worth speaking to a mortgage broker. They will be able to help you determine which lenders you could qualify to refinance with.

When you refinance with bad credit, you’re going to pay a higher interest rate. This is something to consider. You may benefit more from waiting to refinance and improving your credit score.

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