If you want to refinance your property, having a poor credit history doesn’t necessarily mean you’ll be ignored by lenders, but applying for a home loan with bad credit can be slightly more complicated than a normal refinance. Taking some time out to review your finances and accepting the inevitable–that you’ll likely have to pay a higher interest rate–can take the stress out of the home loan application process.
Here are five tips to make refinancing your property with bad credit a little easier.
1. Check your credit history.
If you have a less-than-perfect credit history, you should pull your credit report from each of the main credit reporting bureaus for closer inspection. Remember, this is the same information that lenders have access to; obtaining your report will give you an indication of what a lender takes into account before they approve an application. You’ll be able to examine the credit card and loan agreements that you currently have, as well as any late payments that have been reported.
2. Improve your credit.
Even if you have defaults registered on your credit report, it’s never too late to turn things around. If you are thinking about refinancing your home, it’s imperative that you start making loan repayments and bill payments on time. Lenders will then be able to see that you are taking proactive steps to pay off your debts. Also, don’t make any new applications for credit cards, because rejected applications will show up on your credit report. You will also want to refrain from spending too much on your current cards, which will only increase your debt.
3. Explain your circumstances.
Being honest with your lender about your financial history can help you bolster a spotty credit check during the home loan application process. Explaining why you have bad credit–and more importantly, the steps you have taken to resolve the situation–can sometimes provide lenders with a more accurate overview of your credit history than a computerized scoring system.
4. Prove you can pay.
If you are able to do so, placing a considerable amount of money in the bank or proving that you have other assets can show your lender that you have the ability to repay the home loan. This could lower the interest rate on your loan significantly and suggests to the lender that you are a lower risk than it appears.
5. Find someone to co-sign.
Asking someone to co-sign your home loan might be something you are reluctant to do; however, a co-signed loan could assure the lender that repayments will be made on time because someone with a good credit history is also responsible. The co-signer should understand that it is his or her responsibility to make repayments towards the loan if you are unable to do so.
The Bottom Line
Refinancing your home can provide you with access to the equity in your home, but there’s a lot to consider if you have a bad credit history. Before you make your application, review your credit report and try to budget more responsibly if you are overspending. If you have been rejected by a lender in the past, there’s no need to panic. Refinancing your home with bad credit is certainly possible, even if you have to work a little bit harder.