Refinance With Bad Credit – Pitfalls To Avoid

It's a dangerous situation – you've been labeled a high risk borrower, but you need to refinance your mortgage in order to alleviate the situation. It almost defines the phrase Catch-22. A little education in this situation will take you a long, long way toward keeping the situation from becoming much, much worse.

When you start researching firms that specialize in refinancing with bad credit, you will quickly find a whole slew of fly-by-night companies who are more than willing to do business with you. The problem is, almost every one of them is out to take advantage of you. Here are some things you can do to prevent that from happening:

  • Research Sub-Prime Interest Rates – If a loan is being offered at more than 2% over prime rates, avoid it at all costs. It is normal to expect a sub-prime loan to be a bit higher than the prime rate, but not exorbitantly so.
  • Comparison Shop – As with any other major financial decision, you MUST shop around and make sure you are getting the best rate possible. Refinancing with bad credit is not impossible, but the amount of due diligence you must pay to the process is more important than if you had good credit.
  • Read the Fine Print – Make sure that the loan is not burdened with ridiculous prepayment penalty clauses or other such nonsense.
  • ARMs and Interest-Only Loans are bad news – Even if your current interest rate is slightly higher than what you might be able to get on a adjustable-rate mortgage or interest-only mortgage, you are almost always better off with the fixed rate.
  • Do not get taken by Weird Fees – These are fees added to the loan costs by the mortgage broker. They are known as junk fees. Some examples include origin fees higher than 2%, email fees (I've actually seen this one and bought it successfully), and fax fees. For more information on junk fees, just Google the term "junk fees" and you'll get a good idea of ​​what to look for.

With a little careful research and diligent shopping, you should be able to come out ahead with your bad credit refinancing. Of course, the best thing you can do once you've been able to refinance with bad credit is to improve your credit rating. Do not for an instant think that simply refinancing will solve all of your credit problems. Be ready, willing, and able to do everything in your power to improve your credit situation, or you will likely find yourself in the same situation all over again within a few years.

Source by Allen Bohart

Leave a Reply

Your email address will not be published. Required fields are marked *