Even With Bad Credit There Are Refinance Options

Even With Bad Credit There Are Refinance Options

by Maxime Wong

Even if you have bad credit, it's still possible to get a home mortgage refinance. The lending market isn't quite what it used to be, and loans aren't quite as easy to get as they once were. If you are willing to do a little more work you too can get a loan, regardless of your current credit situation.

The sub prime market deals with borrowers who have a credit score between 500 and 620. There has been quite a bit of news about the credit debacle lately. In fact, many sub prime lenders are no longer in business, or have scaled back their businesses considerably.

Not to worry, there are still plenty of lenders offering loans to borrowers with less than stellar credit. Other factors such as down payment size, or length of time at job can be used to help you qualify.

Sub Prime Mortgages- The Disadvantages

Getting a sub prime loan isn't without it's disadvantages. There is a cost to everything in life, and sub prime loans have some gotchas that you should be aware of.

A main problem with sub prime loans is that many of them are adjustable, with higher rates of interest. So, you could get in with a decent interest rate, just half a percent or so above normal prime rates, but find yourself in six months with a rate 3-4% above what you would pay with good credit.

I've also experienced these adjustable rate mortgage woes. My mortgage started out at $1003 a month, and after a few adjustments, property tax increases, home insurance increases, I was staring at a $1,800 a month mortgage payment. It's very hard to keep up with these type of mortgage increases.

Prepayment penalties are one of the other disadvantages of sub prime mortgages. You'll find that many sub prime mortgages have a prepayment penalty. Which means that if you sell your home or refinance within the prepayment penalty period, you are stuck paying a large fee, up to 4% of the value of your mortgage.

These disadvantages of sub prime loans are serious, so you might want to consider trying to qualify for an FHA mortgage. This is a popular choice for borrowers with credit problems. It offers an affordable mortgage without the disadvantages of typical sub prime mortgages. Many lenders have been moving more towards FHA mortgages, as there are some interesting proposals currently being discussed in Congress specifically to make these mortgages more affordable and easier to qualify for.

Rather than making the tough choices about which mortgage product to use, many borrowers could benefit from making a choice to improve their credit instead.