Refinancing Your Home When You Have Imperfect or Damaged Credit
by C.L. Haehl
Many homeowners choose to refinance their homes to obtain a lower interest rate or to utilize the equity in their home. If your credit is damaged, however, this process can be fraught with pitfalls. It is imperative that you understand the basics of refinancing a home when you have imperfect credit.
Should I Refinance?
Borrowers who already have loans with a non-prime lender (a lender who specializes in loans for customers with damaged credit) are constantly bombarded with refinance offers from other non-prime lenders. This does not necessarily mean that refinancing is in your best interest. You must carefully evaluate the costs associated with the refinance versus your actual savings per month. In addition, if closing costs are to be financed you must consider that you are lessening the equity in your home with a higher mortgage balance. Unless the monthly savings are significant and the debts being paid off sensible, you may be better off with the mortgage you have.
Evaluating the Options
Once you have carefully analyzed the numbers and decided that refinancing makes sense, you must evaluate the different refinance options to choose the best loan. Damaged credit means that you will pay a higher interest rate than someone with perfect credit, but careful shopping can insure that you get the best value. You want to compare not only interest rates, but the total cost of the loan. Lender fees can vary widely. Never allow the mortgage consultant to “sell payment.” Insist upon receiving a Good Faith Estimate that lists specific charges – not a range of costs for each item. This will allow you to compare different lender costs to determine which loan is best.
Refinancing your home can be a sensible idea even if you have damaged credit. Taking the time to shop for the best rate and closing cost package insures that you make a smart financial decision.
