Is bad credit a problem for a refinance?
With the tough economy over the last several years, you may be looking for ways to save money wherever you possibly can. With the attractively low mortgage interest rates available now, you might be considering refinancing your home. This can be a terrific way to cut down on expenses. Not only will your monthly payment go down, but you will throw away less money on mortgage interest as well. Yet, if the tight job market has caused you to perhaps lose your job, or become underemployed, you may have some credit issues to deal with. If you've been late on your credit payments, or even defaulted on a few, your credit may be less than pristine. Can you still get a competitive refinance rate with your credit history?
The answer to this is not one size fits all. The overarching answer is yes, having bad credit does influence mortgage refinance rates negatively. This means that if your credit score is low to poor, lenders will bump up the rate they are willing to offer you. This can be a frustrating situation. After all, you are applying for the new refinancing loan so that you can save money to help pay other bills on time. Yet, your inability to pay other bills on time may jeopardize your ability to refinance and save. This self feeding cycle can truly be maddening!
However, while your poor credit means you will not qualify for the lowest rates offered on the market today, it can still be worth your time to investigate. This is why there isn't a single answer to this question. For example, as interest rates have fallen to new lows, even a higher rate for higher risk applicants may be lower than your current interest rate is now. If excellent credit would get you a 4.4% interest rate, bad credit may get you 5.5% as an example. If your current mortgage holds a rate of 7.5%, then you will still stand to make a significant savings by refinancing your home. The specific numbers will depend on the current rates at the time you are shopping, and just how poor your credit score is.
Yet, there are a few other factors that could affect your rate positively, even with bad credit. If you have a stable job, with good income, this can lower your risk in the eyes of the lender. The lower your risk to the lender, the lower the rate they will extend you. Also, if you can find a cosigner for your new mortgage, you stand a better chance of procuring a more competitive rate, assuming the cosigner has a good credit history.
So, though bad credit will raise the refinance rates that you will qualify for, it doesn't mean you should skip that mortgage refinance altogether. Take the time to shop it out, and see if you can find a few lenders that will work for your situation. You may be able to save more money than you think!