Mortgage Refinancing - How to Buy a House With Bad Credit

Getting your mortgage refinanced can save you hundreds on your monthly mortgage payment. Unfortunately, those how need a break the most may have bad credit.
The scars of an extended recession that has left many without jobs, lost income, and financial hardship are showing up on many American's credit reports. According to a recent report by FICO, nearly 25 percent of consumers' credit scores have dropped into the "poor" range.
Not all is lost though. Even those with bad credit can refinance their mortgage or buy a new home and have save the dream of homeownership.
Here are a few key points to remember if you have bad credit and need a mortgage.
Start Repairing Your Credit
Your first step needs to be paying all your bills, on time. This is the best way to start the process of improving your credit. If you're planning to refinance or buy a new home soon you need a good credit track record--even if the credit score is still lagging.
In addition, you should request copies of your credit reports and inspect them closely. Many consumers have errors on their credit reports of which they are completely unaware. Taking the time to identify and remove these errors can immediately lift your credit score. Many times it simply requires a letter explaining the mistake to the creditor, which will get them to file a correction.
Recovering from Foreclosure or Bankruptcy
If you have had a foreclosure or bankruptcy in the past you need to wait it out. The impact on your credit report is about 10 year, but that doesn't necessarily mean you can't get a mortgage loan. Here are some of your options:
Conforming loans require four years after filing bankruptcy
FHA loans require two years after a foreclosure
Hard-money lenders might qualify you within six months after a bankruptcy or foreclosure
Subprime lenders may approve you within a year to two years
 
Credit Scores and Mortgage Rates
One thing is for certain, if you have bad credit you will pay a higher interest rate. Mortgage lenders directly correlate your credit score with the probability they will be repaid in full. Therefore, if your credit score is lower you will pay a higher mortgage rate and most likely have a higher monthly payment.
This may become a challenge in qualifying for a mortgage refinance or new home--since you must have the income to support the mortgage payment.
Seller Financing or Land Contracts
One final option in finding a way to buy a new home with bad credit is to consider seller financing. In many cases homeowners, who have endured their homes being on the market for months, might be willing to help you with the financing.
These seller financed arrangements are often in the form of lease-to-own or land contract agreements. Each contract is unique, but typically these arrangements collect a payment from you and a portion goes to pay the current mortgage payment and a portion to build a down payment savings, until a time in the future when you have the option to buy the home with better credit.


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