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How to Refinance Your Home with Bad Credit

How to Refinance Your Home with Bad Credit

The year 2020 saw national mortgage rates plummet to all-time lows, mostly due to the coronavirus pandemic. This drove millions of Americans to capitalize on low borrowing costs.

 

Illinois mortgage rates followed this trend. Even though the rates increased slightly in 2021, they remain low by historical standards. Seems like the ideal time to refinance a home, right?

 

For homeowners with bad credit scores, however, it’s a different story. Refinance companies, overwhelmed with requests and estimating with an iffy economy, are bumping up their standards and blackballing everyone but those with good credit. But just because you have a bad credit score doesn’t mean you have to give up on owning a home.

 

How to Refinance with Bad credit

Before you refinance with bad credit, it’s good to know where your score stacks up and how it will affect your mortgage approval chances.

 

A common scoring model is the FICO score, which is calculated based on the amount owed, payment history, credit type, credit history length, and new credit.

 

FICO® collates findings to give individuals a credit score ranging from 300 to 850. To qualify for a conventional mortgage, the minimum credit score is usually 620. And about 93% of most successful homebuyers have credit scores of 620 or higher.

 

However, getting a loan won’t come easy if you have a poor credit score (FICO┬« score under 620). A less-than-ideal credit score can result in higher financing costs, and you may need to pay a huge down payment to get a loan.

 

Don’t fret! You can still get a mortgage for your home. Here are helpful tips to help you refinance with bad credit.

 

If You Have Bad Credit, Shop Around

Every refinance lender is different, and some can give lower rates than others. Research shows that borrowers can save thousands over the life of the loan by getting additional rate quotes.

 

Explore Bad Credit Home Loans

 

Government-backed loans give more flexibility to borrowers with lower credit scores. FHA, USDA, and VA loans are programs that you can consider. FHA loans permit lenders to accept a credit score as low as 500 with a 10% down payment. VA loans and USDA loans, on the other hand, have no fixed credit score requirement. But you may need to meet specific requirements, so ask your lender about your eligibility.

 

Find a Co-Signer

Individuals with good credit co-sign on loans to help their loved ones take out a loan or refinance with bad credit.

 

You can get a nonoccupant co-client with better credit to co-sign the loan if you have bad credit. This can help boost your application and make you a more appealing candidate, but only if the co-signer agrees to take on the debt.

Improve Your Finances and Credit

As you explore options to refinance with bad credit, it’s essential to think about improving your credit for the long-term. Checking your credit report, making payments on time, paying down bills, and contesting credit report inaccuracies can help your score considerably.

 

About 15% of American homeowners have credit scores between a 500 and 599 range, which is considered a poor score. Asides from bad credit, these homeowners face foreclosure and other financial difficulties.

 

Why SKYDAN Equity Partners?

We are not a refinance lender, bank, or mortgage firm. SKYDAN Equity Partners helps homeowners unlock the value of their home equity through a sale and leaseback agreement.

 

We don’t care about your bad credit score. What matters is how much equity you have in your home. There are zero mortgage payments, credit checks, and interest.

 

Illinois residents can now refinance with bad credit and pay off debt, thanks to SKYDAN Equity Partners’ Sale/Leaseback Program. If you need to tap into your home’s equity to refinance your home, give us a call today.