Local bankers once controlled the mortgage market. To receive approval for a bad credit refinance on a second home, a borrower depended on a personal relationship with a loan officer. If a local bank was not presently making loans, a borrower was out of luck. Today, the lending landscape is drastically different. All applicants may apply on-line with dozens of specialty lenders that understand the challenges presented by the economy today.
How to get a Bad Credit Refinance on a Second Home
Qualifying for a bad credit refinance on a second home requires borrowers to prove a strong ability to repay loans. A low FICO score reflects past financial history. The best lenders also consider present repayment ability as a primary qualification factor. To qualify for a favorable rate, consider top-rated specialty lenders that evaluate each application based on years of lending experience.
The Power of Equity
All lenders focus intently on home equity when making real estate loans. The current market value of real estate, less all existing lien balances, determines equity. Lenders then calculate the potential loan-to-value ratio if granting loan approval. The maximum loan-to-value ratio is lower for borrowers who present a spotty payment history. Nevertheless, high equity overcomes almost all objections so long as income is sufficient to meet monthly payment obligations.
Additional Residence Dilemma
Applicants who experience difficulty getting a bad credit refinance on a second home face a slight disadvantage. Primary residences receive protection provided by homestead laws in every state throughout the United States. Most borrowers pay the mortgage on their primary residence first, as a priority, and then pay other obligations. Lenders know from experience that additional real estate loans include higher risk. Home equity, a clean payment history for 12 or more months, and disposable cash flow overcome this dilemma despite low FICO scores
*Affects pricing. With the No Closing Cost
Option, borrowers finance the closing costs instead of paying for them at
closing. Borrowers who pay closing costs at closing may qualify for a lower
interest rate. Some upfront fees (ex. credit report and appraisal) may apply
and may be credited at closing.
*Refinancing or taking out a home equity loan or line of credit may increase
the total number of monthly payments and the total amount paid when compared to
your current situation.
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