5 Tips for Refinancing Your Home With Bad Credit

If you want to refinance your property, having a poor credit history doesn’t necessarily mean you’ll be ignored by lenders, but applying for a home loan with bad credit can be slightly more complicated than a normal refinance. Taking some time out to review your finances and accepting the inevitable–that you’ll likely have to pay a higher interest rate–can take the stress out of the home loan application process.

Here are five tips to make refinancing your property with bad credit a little easier.

1. Check your credit history.

If you have a less-than-perfect credit history, you should pull your credit report from each of the main credit reporting bureaus for closer inspection. Remember, this is the same information that lenders have access to; obtaining your report will give you an indication of what a lender takes into account before they approve an application. You’ll be able to examine the credit card and loan agreements that you currently have, as well as any late payments that have been reported.

2. Improve your credit.

Even if you have defaults registered on your credit report, it’s never too late to turn things around. If you are thinking about refinancing your home, it’s imperative that you start making loan repayments and bill payments on time. Lenders will then be able to see that you are taking proactive steps to pay off your debts. Also, don’t make any new applications for credit cards, because rejected applications will show up on your credit report. You will also want to refrain from spending too much on your current cards, which will only increase your debt.

3. Explain your circumstances.

Being honest with your lender about your financial history can help you bolster a spotty credit check during the home loan application process. Explaining why you have bad credit–and more importantly, the steps you have taken to resolve the situation–can sometimes provide lenders with a more accurate overview of your credit history than a computerized scoring system.

4. Prove you can pay.

If you are able to do so, placing a considerable amount of money in the bank or proving that you have other assets can show your lender that you have the ability to repay the home loan. This could lower the interest rate on your loan significantly and suggests to the lender that you are a lower risk than it appears.

5. Find someone to co-sign.

Asking someone to co-sign your home loan might be something you are reluctant to do; however, a co-signed loan could assure the lender that repayments will be made on time because someone with a good credit history is also responsible. The co-signer should understand that it is his or her responsibility to make repayments towards the loan if you are unable to do so.

The Bottom Line

Refinancing your home can provide you with access to the equity in your home, but there’s a lot to consider if you have a bad credit history. Before you make your application, review your credit report and try to budget more responsibly if you are overspending. If you have been rejected by a lender in the past, there’s no need to panic. Refinancing your home with bad credit is certainly possible, even if you have to work a little bit harder.

source: totalmortgage.com

What is a Piggyback Mortgage?

While mortgages are a good time, private mortgage insurance (PMI) is not. Usually, if you don’t have enough money to make a down payment of at least 20 percent (keeping the loan-to-value ratio (LTV) under 80%), you’re required to get mortgage insurance. Fortunately, clever people figured out a loophole—the piggyback mortgage.

How it works

There are three parts to this solution, dubbed the 80-10-10 format. The first is to make a down payment of 10 percent. Step two is to get a “piggyback mortgage”, possibly in the form of a home equity loan or home equity line of credit, to cover the remaining 10 percent of the down payment. Finally, you will get a mortgage for 80 percent of the purchase price. And there you have it: 20 percent down and no mortgage insurance.


Other types of piggyback mortgages do exist, like the 80-5-15, or the 80-15-5. The middle number stands for the second mortgage and the third the down payment. These formats aren’t as common as the 80-10-10, but they are available and useful for some people.

Are there any possible problems?

Unfortunately, it’s not all rainbows and ponies with a piggyback mortgage. When it comes time to refinance, if the lender that is issuing the piggyback mortgage doesn’t agree to resubordination, you could be forced to re-evaluate your situation and call an audible.

Resubordi-huh??

It’s like this: you have two mortgages, the primary mortgage and the piggyback mortgage. Naturally, the primary mortgage is first, and the piggyback mortgage is second in line, or as they say, subordinate to the primary mortgage.

Resubordination is the process of keeping the primary mortgage in first place. Each lender will want their loan to be first in line, as that loan will have a higher priority and be paid off first, so it’s possible that the lender will not agree to remain in second place when you refinance.

This creates a problem because conventional first mortgage lenders require that their loan is in the first position in order to refinance. Usually, this isn’t a problem, as resubordination is a fairly common practice.


They won’t resubordinate! What do I do?!?!

If your second lender won’t agree to resubordination, you could get a cash-out refinance, and then use that cash to pay off the piggyback mortgage. You could also get a cash-in refinance, which would reduce your loan-to-value ratio. After you talk it out with your lenders, a solution will usually become clear.

Bottom Line

If you want to avoid paying private mortgage insurance, getting a piggyback mortgage is one way to make that happen. Just make sure you talk through the refinancing process with your lenders so you know what your options will be when that time comes.

source: totalmortgage.com

Refinancing Redux: What Happens the Second Time Around?

Given persistent low-interest rates, some homeowners are asking if it’s worth it to refinance a second time before rates creep back up. Counting all types of refinances, Freddie Mac, the government-sponsored mortgage outfit, says the average loan refinanced in the first quarter of 2015 was about 5.6 years old, and homeowners cashed out a total of $7.6 billion.

Is it really advantageous to go through all that paperwork just to save a little bit each month? Here are five things to consider before any “redo-refinancing.”

1. Assess Your Penalty

Unlike the first time you refinanced, dipping back into the pool can come with special penalties. While you likely won’t have a no prepayment clause, the industry isn’t really set up for back-to-back refinancing. If you refinanced within the past 60 to 90 days, double check for any red flags. For example, an FHA Streamline refinance requires 60 days with the previous loan before you can refinance again.

2. Calculate Your Potential Savings

With any refinancing, it’s important to have a crystal-clear view of what you will save overall, not just in monthly payments. The general rule of thumb used to be that you refinanced when current interest rates fell two points lower than your loan. Today people are refinancing for less, so you really need to read the fine print. Some homeowners also refinance for a higher monthly note so they can pay off their loans faster.

3. Understand All Costs and Fees

You can’t get a decent picture of refinancing — once, twice or beyond — unless you understand every single cost and fee, like mortgage-recording taxes. Refinancing can reduce your principal owed, but it can also maintain the same loan amount. If you plan on moving any time soon, this is also a key consideration. Chances are you won’t recoup the costs unless you plan on sticking around.

4. Gather Documents

No matter how many times you choose to refinance, you still have to have all the paperwork ready to go. Required documents usually include driver’s license, pay stubs and tax returns. Unique situations, such as self-employment, may prompt a need for additional paperwork.

source: totalmortgage.com

How to Get Rid of Your PMI

Private mortgage insurance (PMI) can help you buy a home without a big down payment, but it’s expensive in the long run. An online PMI calculator reveals that a $300,000 house purchased with a $10,000 down payment can stick you with an extra $277 in PMI payments each month. That adds up quickly: in five years, you’ll have shelled out an extra $16,620.

Fortunately, there are ways to save on PMI costs. Before you buy your dream home, consider your PMI exit strategy to save big in the long run.

1. Avoid an FHA

The best way to avoid paying PMI is to make a 20 percent down payment on your home so that you don’t need it at all. Failing that, you should do your best to stay away from FHAs. Because they’re intended for riskier borrowers, you end up paying PMI for the life of the loan, regardless of how much equity you’ve built.

If you’re an otherwise well-qualified borrower looking for a low down payment option, take a look at a conventional loan. Recent changes over the last year have made it possible for borrowers to put as little as 3% down, and once you have built up enough equity (generally 22% of the loan) you can cancel the PMI.

2. Make Extra Mortgage Payments

By paying extra on your mortgage each month, you’ll be increasing your equity at a faster rate than if you just paid the minimum. Any extra payment you make goes directly to paying down your principal, and you’ll save by not owing additional interest on that portion of your mortgage. Once you owe less than 78-80% of the original value of your home, you can call your bank and request they cancel the PMI charges. The sooner you can pay down your debt, the sooner you can get rid of PMI payments.

3. Re-Financing Your Mortgage

Keep an eye on the housing market in your neighborhood and on mortgage rates from other lenders. If home values have gone up since you bought your house, you may have more equity than you think. Think of it this way: if your $300,000 home is now worth $400,000, you have an extra $100,000 in equity. If the amount you owe on your mortgage comes to under 80 percent of the new appraised value, you can refinance your mortgage to get a new loan with no PMI. Just make sure your new interest rate isn’t too high and you’ll come out ahead.

With a little planning and discipline, you can take advantage of these tips to reduce or even eliminate your PMI costs. The savings can be enormous, so it pays to crunch the numbers and get focused on the goal of kissing your PMI goodbye.

source: totalmortgage.com

How to Recognize a Bad Mortgage Refinance Loan

As mortgage rates drop, you might anticipate refinancing your mortgage and getting a lower rate and payment. Your current home loan lender may encourage refinancing, and you might receive unsolicited offers from other banks in the area.

With so many financial institutions offering refinancing, and given how it’s a common mortgage practice, it’s easy to assume that any loan is a good one. Fortunately, not all re-financing offers are favorable, and if you’re not careful, you might refinance into a loan with undesirable terms. Here’s a look at three signs of a bad mortgage refinance.

1. Going from a fixed-rate to an adjustable-rate  

If you tell a mortgage lender you want the lowest interest rate and monthly payment possible, the lender might suggest refinancing into an adjustable-rate mortgage.

These mortgages typically offer lower rates than fixed-rate mortgages during the initial years, which can dramatically reduce your home loan payment. This is a godsend if you’re experiencing payment problems. The problem, however, is that these low rates aren’t permanent. Sure, you might have an attractive fixed rate for the next two or three years, but your rate will adjust every year thereafter. And with each rate adjustment, the interest rate can increase or decrease. If the rate increases, so does your home loan payment.

2. Lender encourages borrowing too much

When refinancing a mortgage loan, there’s the option of cashing out your equity. You can use the money for debt consolidation, home improvements or build your rainy day fund.

There’s nothing wrong with a cash-out refinance. If you have plenty of equity, it’s an affordable way to put quick cash in your pocket. The problem is that some people cash out too much of their equity.

A cash-out refinance increases how much you owe, so instead of dropping your mortgage payment, it might increase. And unfortunately, some lenders encourage borrowers to cash out as much of their equity as possible. A loan officer might excite a borrower by explaining the many uses for cash, and unfortunately, some people can’t see past dollar signs. As a rule of thumb, only consider a cash-out refinance if you can comfortably afford a higher monthly payment, or else you’ll risk losing the home.

3. Overly expensive closing costs

Closing costs vary, and you can expect to pay between two percent and five percent of the mortgage balance. If you’re refinancing for the first time, you may assume closing costs are the same no matter where you go. However, different banks charge different fees for common services, such as the loan origination, the appraisal, the title search, etc. And some lenders bet on the fact that you’re not going to do your homework and compare costs.

Even if you have a long-term relationship with your current bank and you’re using this financial institution for your refinance, make sure you get at least two or three quotes from other lenders. Since closing costs are paid out-of-pocket or wrapped into the mortgage loan, comparison shopping is the only way to protect against getting ripped off.

Bottom Line

Refinancing a mortgage loan can be the answer if you need a lower house payment. However, if you take a chance with an adjustable rate mortgage, borrow more than you can afford or get stuck with high fees, refinancing might not be as financially beneficial as you think.

source: totalmortgage.com

Should You Refinance with Your Current Lender?

Refinancing a mortgage is essentially getting a new home loan to replace an existing one. Some people apply for new financing to lower their interest rate, change their mortgage terms, remove a name from a mortgage or tap their equity. However, after you decide to refinance, the next step is choosing a lender.


Just about every bank offers mortgage refinancing, and many lenders will vie for your business. You can apply with any bank or mortgage broker, but there are good reasons to refinance with your existing lender.

Potentially receive a better mortgage rate

Mortgage lending is a competitive business, and if you’re a long-term customer, the bank undoubtedly wants to retain your business. For that matter, refinancing with an existing lender can potentially result in a cheaper mortgage rate. This doesn’t mean you shouldn’t shop around and compare rates with other banks. You never know, a competitor may offer a better deal. If your existing lender is determined to keep your business, the bank may agree to match your best quote.

Streamlined process

Since you have a history with your lender, refinancing with the bank might be quicker than refinancing with another financial institution. Mortgage lending requires a lot of documentation. This includes tax returns, paycheck stubs, bank statements, and information about your various other assets. It can take days to gather your documentation, and it takes additional time for the mortgage lender to review this information. To accommodate existing customers, many banks streamline the approval process. They might request fewer documentation, resulting in a faster process.

Fewer closing costs

Closing costs average two percent to five percent of the loan amount, according to Zillow. And unfortunately, this is one costs many don’t consider when refinancing a mortgage loan. You can pay this expense out-of-pocket, or the lender can wrap closing costs into your new mortgage loan, increasing the total loan balance. Refinancing with an existing lender can prove cost-effective because the bank might eliminate a few mortgage-related fees, resulting in cheaper closing costs. For example, they might waive the appraisal, the title search fee or reduce the loan origination fee.

Avoid a prepayment penalty

A prepayment penalty is included with some home loans, and the purpose is to deter a borrower from refinancing the mortgage before a certain amount of time has elapsed — typically two to five years.
If your mortgage has a prepayment penalty and you refinance during the penalty period, the bank might charge a fee, such as six month’s of interest. This is a tactic used by lenders to stop mortgage borrowers from going elsewhere too soon. This way, the bank can recoup some of their investment plus interest. But if you refinance with an existing lender, the bank might waive the prepayment penalty since you’re remaining a customer.

Bottom Line

Refinancing can help you secure a better, cheaper mortgage. You don’t have to stick with your current lender, but there are sound financial reasons of doing so. Understand, however, that to enjoy the perks of refinancing with an existing lender, the bank must own your loan. If the bank sold the mortgage to a third-party lender, it has to adhere to this lender’s refinancing guidelines, in which case you may not receive the same benefits.

source: totalmortgage.com

3 Refinance Options You Should Always Avoid

Mortgage refinancing can be the logical choice for many homeowners. Whether it’s to reduce the interest rate, lower monthly payments or for any other reason, it can be a smart move. However, it’s important to be aware of some common refinancing schemes that can get you into trouble. They are almost always bad deals and should be avoided.

1) Refinance for Free
When refinancing, you will typically end up paying between 2 to 3 percent of the value of your home in fees. These covers things like the application fee, appraisal, title search and legal fees. This is the norm, so being offered a deal to refinance for free should be a red flag that something isn’t right. One trick that lenders will pull is offering “no cost” refinancing where the costs are transferred into something else like a higher interest rate.

Technically speaking, this would be no cost refinancing. But in reality, you end up getting hit with additional expenses later on. The bottom line is that refinancing comes with inherent costs. There’s really no way around it, so it’s best to stay away from lenders with unrealistic promises.

 2) No Closing Costs
The thought of not having to pay anything to close a deal can seem enticing, and unfortunately, many homeowners fall into this trap. With this tactic, lenders often lure unsuspecting homeowners into a bogus deal because they don’t understand the long-term implications. Like refinancing for free, the closing costs usually get converted into a higher interest rate. Although you pay less upfront, your monthly payments will be higher, and you inevitably end up paying significantly more over time.

According to RefiAdvisor, “the only time these loans are a good deal is if the interest rate increase is very slight, say .125 percent. However, there are not very many lenders willing to offer no closing costs loans at this interest rate. In almost every case you are better off paying the closing costs yourself in exchange for a better interest rate.”

3) Lower Interest Rate Promises

While you obviously want to find a low interest rate when refinancing, you should be wary of deals that look to good to be true. One trick that’s used by con artists is offering “special programs” or leaseback schemes with below average interest rates. Because there are government programs that help needy homeowners refinance for affordable rates, some scammers will pose as representatives of one of those programs and take advantage of people.

With leaseback schemes, a scammer may pretend to be a real estate investor who wants you to sign over the title of your home so a borrower with better credit can get a new loan at a reduced rate and then sell your home back to you. However, it’s unlikely that you’ll get your home back, and it can cause a host of problems. That’s why you always should be cautious when promised a ridiculously low interest rate.

To ensure the best deal, you should look around, compare your options and negotiate. It’s also wise to stick with a national lender or national bank to reduce your odds of getting scammed. If you have any questions or concerns about a lender, you should perform some research, read comments and see if they have accreditation with the Better Business Bureau.

source: totalmortgage.com