We Can Mortgage Almost Any Situation, Bad Credit Mortgages Included

Why you might choose to refinance?

A common reason to refinance is to consolidate debt. If you have accumulated a lot of high-interest debt, since you initially signed up for the mortgage, you might consider refinancing it. This often makes sense since mortgage rates tend to be a lot lower than the interest rates on credit cards and other forms of unsecured debt. When you consolidate debt, there are two choices:

• Take out a new mortgage for the entire amount of your existing mortgage and outstanding debt.
• Take out a new mortgage for just the amount of your existing mortgage and a separate home equity line of credit for the debt that you are rolling into your mortgage. This option is feasible if you anticipate borrowing more money from your home later on.

Another reason you might want to refinance your mortgage is to access equity. The simplest way to do this is with a home equity line of credit. With a home equity line of credit, you can access up to 65% of the value of your home (provided that your mortgage and home equity line of credit together don’t total more than 80% of the value of your home).

Yet another reason to refinance your mortgage is to take advantage of lower mortgage rates. If you have a fixed rate mortgage and are locked in at a higher rate, you might consider refinancing so you can lock in at today’s lower mortgage rates.

What does refinancing your home mean?

Refinancing your home (mortgage loan) basically means taking out a new loan with different terms to pay off the original mortgage. It means getting rid of the original mortgage by paying it off with the new loan, and then working towards paying off the new loan. By refinancing your loan you are performing a complete overhaul so you don’t need to agree to a loan with similar terms. If you initially went with a fixed-rate you have the absolute freedom of choosing any other type of mortgage loan. Mortgage rates can vary from province to province, so find out which rates are applicable in your area of residence.

What are the benefits of refinancing?

• By refinancing your mortgage you can have lower monthly payments. A refinanced loan may increase the length of your term but will result in lower interest rates and more monthly cash flow.
• If you have lowered your interest rate and monthly payments by a significant amount you may be able to afford to decrease the length of your mortgage term. You would do this by paying a little bit more every month and yet paying less than what you were paying in your original mortgage loan overall.
• You get more cash in hand. Refinancing a mortgage means refinancing the amount of your original loan and not the amount of the loan you have left to pay.

What is the credit score needed to refinance a home loan?

Credit requirements usually differ depending upon type of mortgage and lender. For a conventional mortgage refinance, you need a score of 650 or more. Certain government programs require a particular credit score, however, or have no minimum at all. As is applicable for other types of loans, the higher your credit score, the more likely a mortgage refinance lender will be open to working with you. Not only are your chances of approval higher, but you typically receive a lower interest rate and more favorable loan terms than qualifying borrowers with lower scores.

Beyond credit score, it should also be taken into account if you possess the funds to pay closing costs and fees associated with refinancing, which includes any prepayment penalties your original lender may charge. You generally require at least 20% equity in your property to refinance as well – it means you have made sufficient headway on your mortgage to own a part of the home.

Lenders check your debt-to-income ratio too, or your total monthly debt payments compared with your income. It is ideal for your debt obligations to be no more than 36% of your monthly earnings, though some lenders will accept a higher amount.

What happens if your credit score is poor?

If your credit score is under the 650 threshold, you might not be able to go the conventional route. More specifically, a score between 600 and 649 is considered fair, and one between 300 and 599 is poor.

Talk to your own lender first

Lenders place great emphasis upon relationships, so borrowers should consider that aspect too. It is useful to have a friendly source of cash when you need financing for a home, vehicle or business, so getting to know your lender is a good idea. Firstly, it is advisable to get a referral to a specific person at a bank. Having the name of someone and something in common like the referral source is an excellent way to start building the relationship. Explain your needs and find out the options the bank can offer to you.

What you really want is the benefit of the doubt. If the lender is looking at your debt-to-income ratio and loan-to-value ratio, among other factors, and your application falls under the grey category, it can go either way. If you have a relationship with the lender, it might give you a helpful edge that eventually becomes a “yes”. Communicate often and be prepared with the financials the bank will be requesting to back up your request for funding. Being organized and responsive is crucial – the lender will appreciate you helping them do their job without hassle, which is to put the loan together for underwriting.

Try government insured loans

Canada, like many other countries, offers government-insured loans. Most of the government-backed mortgages require less money down and less equity on your home. It makes it more convenient for homeowners with poor credit to refinance. Moreover, the Canada Mortgage and Housing Corporation has many resources for borrowers and can help you understand what you can afford and whether refinancing is right for you. You need to find out about the caveats and restrictions on government-insured loans, but there are many benefits for borrowers as well.

Look for a co-signer

If bad credit is preventing you from getting a better mortgage, you can opt for this strategy to quickly change your situation – get a reliable co-signer for the loan. A co-signer with good credit history and deep pockets provides a sense of security to the lender. If the loan isn’t repaid, the co-signer is held responsible, so the lender can then look to them for any shortfall. Co-signing a mortgage is a business deal, even if it is among family or friends. Strong co-signers have worked hard to get their money and credit, so you have to convince them that you have the financial capacity to repay the loan. You have to ensure they won’t get into trouble due to being a co-signer and that you will put repayment of the loan first, before other obligations.

Some difficult questions will also have to be answered. Is the co-signer also a co-owner of the property? What happens in the event of divorce, death or a simple falling-out? Both parties should have wills, living wills and any other paperwork needed to protect estates. Get help from an attorney to get the entire arrangement in writing, to protect both yourself and your co-signer.

Start budgeting

Track your income and expenses – to put it in a nutshell, keep tabs on how much is coming in and how much is being spent. Cut down on unnecessary expenses, pay bills on time and start saving.

Check your credit report

There are several websites where you can check credit reports from the three credit reporting bureaus – TransUnion, Equifax, and Experian. Check for factual mistakes, unauthorized charges, and fraud. Credit report issues can lead to lower credit scores and higher financing costs.

Clear Debts

It isn’t easy being in debt and clearing it off is a mammoth task at times. Try this technique – make a list of all debts and arrange them by size. Target the smallest and pay it off first – it means one debt cleared and one less bill to pay. Moreover, you don’t have to worry about late fees since it is paid off. The money saved each month can then be used to pay down the next bill you tackle.

Save Money

Once you get into the habit of saving, it becomes more convenient with each dollar you stash away. Regardless of the amount, you must save some money – figure out an amount and put that aside immediately. Don’t touch it unless it is for an emergency.

How to shop for bad credit refinancing companies

Shopping around for bad credit mortgage refinance companies will give you a better idea about your options so you can make informed decision. Here is a checklist to keep in mind:

• Get a mortgage credit report first and look for red flags or errors impacting your scores.
• There are several home value estimator tools online to check the current market value of your home, so use of them to get an idea.
• Few banks will come forward to refinance your mortgage if you owe more on it than it is worth. Banks issue loans based on market value of your property, and without your own money invested, the investment for a third party is risky. While you are calculating the market value of your home, make sure you conduct research as different banks require varied amounts of equity.
• Make sure you provide the same financial information to all refinance lenders for accurate loan estimates.
• Don’t hide any major credit issues such as history of late payments, bankruptcies, or foreclosures.
• Get all of your price quotes on the same day when possible.
• Once you choose a lender, it is imperative to get a written rate lock confirmation.

Remember the first couple of steps are crucial in order to get an accurate rate quote from a refinance lender that specializes in bad credit. Start with your current mortgage company and have them pull your credit score so you know where you stand. The reason you should know your home’s current market value is it is needed for a cash-out refinance.

What should you do before home refinance?

You can’t blindly opt for a refinancing option. Thorough research has to be conducted, and you definitely should talk to a professional regarding your options. If you have bad credit or a less than perfect credit score, it is in your best interest to improve your credit before refinancing, as mentioned above. Get your free credit score and credit report card (it shows where you stand in each of the five areas that factor into your score along with ways to improve each area). Here is what else you samantha-brookes-touchedld do:

• Check your payment history.
• Make 12 consecutive months of on-time payments for all your bills, including your utilities and phone bill.
• If you haven’t done so in the last year, go through your credit report in detail and dispute any errors. Rectifying errors could take time, so don’t neglect it. Once corrected, your credit score might go up, which in turn gets you lower rates when you refinance.

How to shop for bad credit refinancing companies

Replacing a 5% interest rate with a 4% rate isn’t as simple as it sounds. There are fees and other costs associated with a mortgage, such as closing costs. When you find a new refinance loan, bear in mind that even if it offers a lower monthly mortgage payment, bad credit refinance generally requires that you pay closing costs. As a rule of thumb, refinance only if you can save yourself at least half a percent on your current interest rate, although more is better. Factor in those expenditures and any repayment terms associated with your new home loan before you go ahead and sign on the dotted line. Here are the closing costs:

• Application fee – This charge is imposed by lenders to cover the cost of checking a borrower’s credit report, and the initial costs to process the loan request.
• Title insurance and title search – This charge is to cover the cost of a policy, which is generally issued by the title insurance company, and insures the policy holder for a specific amount, covering any loss caused by discrepancies found in the property’s title. It also covers the cost to review public records to verify ownership of the property.
• Lender’s attorney review fees – The company or lawyer who conducts the closing will charge the lender for fees incurred, and in turn, the lender charges those fees to the borrower. Settlements are conducted by attorneys representing the buyer and seller, real estate brokers, escrow companies, title insurance companies and lending institutions. In most situations, the individual conducting the settlement is providing their services to the lender. Borrowers may be required to pay for other legal fees and services related to their loan, which is then provided to the lender. They may want to retain their own attorney for representation in the settlement, and all other stages of the transaction.
• Points and fees incurred in loan origination – Lenders charge an origination fee for their work in preparing and evaluating a mortgage loan. Points are prepaid financial fees which are imposed by the lender at closing. This is to increase the lending institution’s yield beyond the agreed upon interest rate on the mortgage note. One point is equal to one percent of the actual loan amount.

Before refinancing it is necessary to be aware that you have to pass the mortgage stress test. You have to qualify at the greater of your mortgage rate plus 2% and the Bank of Canada’s five-year benchmark rate. In case you have taken on a lot of additional debt, and/ or your income is lower than when you were first approved for your mortgage, this might no longer be an option.