Options For Mortgage Refinancing With Bad Credit

In today’s economy it’s not uncommon for homeowners to have trouble keeping up with their mortgage payments. Many people have lost jobs, had hours or pay cut, or been caught up in the wave of decreasing property values and increasing adjustable rate mortgage payments. Unfortunately, refinancing a mortgage with bad credit isn’t exactly a snap, but there may be options out there that can help.  Refinancing with bad credit isn’t as easy as it was even 3 years ago, to be sure, but it’s not impossible either.

Why should homeowners consider refinancing with bad credit?

• To avoid foreclosure. If you are behind in your mortgage payments or have had your lender contact you about possible foreclosure, refinancing could help.
• If you have an adjustable rate mortgage that is set to adjust up and the new payment will be too much for you to make.
• If your mortgage payment is more than 31% of your monthly income.

What is the best refinancing option if you have bad credit? The FHA has refinancing programs targeted specifically for those with bad credit. The lending guidelines used by the FHA are more lenient. While they still look at your credit history, the FHA considers your overall credit and payment history rather than focusing on just your recent history. This allows more people to qualify for help through refinancing.

Even those who have previously filed for bankruptcy can qualify for FHA refinancing. People who have filed for Chapter 13 but have made all their payments on time for at least a year are eligible under FHA guidelines. Those who have filed for Chapter 7 bankruptcy and have been discharged for at least two years are also eligible.

The FHA offers three main refinancing options.

• Cash out refinancing: This option works best for those who want to refinance their current mortgage plus tap into the equity in their home for some extra cash. Cash out refinancing provides homeowners with a new mortgage for more than the balance due on their current mortgage.
• Straight refinancing: This option is best for those who simply want to lower their monthly payments or interest rates.
• Streamlined refinancing: This option is best for those who want lower monthly payments and want to avoid some of the paperwork and costs typically involved in refinancing. The streamlined option allows homeowners to cut the interest rate on their mortgage without the need for an appraisal. This option is only available to people whose original loan was through FHA.

While there are other refinancing options available to those with bad credit, the FHA options, due to their more relaxed requirements regarding credit history, may be the best option.  And of course, it goes without saying that you should work on improving your credit so you won’t find yourself in this situation again.