Why Shouldn’t I Refinance My Mortgage If I Have Bad Credit?
If you have bad credit, you must make sure that refinancing is the best option for you. Just because your lender states that you are approved for refinancing on your mortgage loan, does not mean that it is the right thing for you to do. There are several factors that determine whether a bad credit mortgage refinancing program is best suited for your situation. The question is, what factors aid in determining why I shouldn’t refinance my mortgage if I have bad credit?
Determine The Amount Of Equity In Your Home
Find out what the current equity is on your home. If your equity exceeds 20%, then you are in a good position to get refinancing on your mortgage, even with bad credit.
Calculate Your Debt-to-Income Ratio
Traditionally, lenders look for your debt-to-income ratio to be at about 36%. Ideally 28% of that debt should be dedicated to paying your monthly mortgage. If you ratio is higher than the recommended average, than bad credit lenders tend to view your financial situation as having too much debt.
Do I Have Money in My Savings Account?
While trying to refinance your mortgage, bad debt lenders want to know the amount of money that is in your savings account. They want assurance in knowing that if you get into a financial “jam”, then you are still able to pay your mortgage faithfully every month.
How Has Your Credit Score Been Affected?
Hopefully, your credit score has increased, and therefore you are refinancing your bad credit mortgage to get a better rate. If you can prove a solid paying history for the past two years, then usually you will see an increase in your credit score. This will greatly aid in a favorable decision to refinance your mortgage even if you still have bad credit.
*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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