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October 19, 2018 Kristen Godel

How to Refinance a Mortgage with Bad Credit

Mortgage refinancing is typically done when someone is looking to payout their existing mortgage in order to obtain a better rate, seek additional funds or both. When it comes to mortgage refinancing with bad credit, there are options available that would help home owners obtain a new mortgage, especially when the purpose of the refinance is to payout debts that are causing the credit to be bad in the first place.

In most circumstances, missed payments typically result from a combination of juggling multiple debts and an overwhelming burden of monthly payments. These circumstances often lead to a downward spiral causing damage to their credit scores and leaving a stain on their credit history which makes it harder to obtain future credit or the best pricing on those credit products.

When it comes to mortgage refinancing with bad credit, the lenders would first look to see that the home owner has at least 20% equity left in the home, taking into account the new requested mortgage. If this is satisfied, they would also establish that the income of all applicants is sufficient to support the new mortgage payments within their respective guidelines for the debt servicing ratios.

Once the existing items have been accounted for, the lenders would seek to understand the circumstances surrounding the bad credit such as what lead the borrowers to get into the bad credit situations. An example would be if you were to have a job loss, health problems, etc…As long as the “story” makes sense, the lenders would continue to review the mortgage refinancing request, which includes conditioning certain debts to be paid out through the proceeds of the new mortgage. This is because they would want to ensure that the requested funds are used (at least in part) to put the borrowers in a better position to improve their credit, minimize monthly payments, while at the same time, increasing their monthly cashflow.

In fact, mortgage lenders are more reluctant than ever to provide mortgage refinancing solutions without addressing (paying off) at least some of the items that are causing the credit to be poor. For example, if you have bad credit and are looking for mortgage refinancing for home renovations exclusively, they would see your desire to renovate as secondary to clearing up some of those debts. In circumstances such as this, you would likely need to request additional funds to cover both the lenders conditioned debts (to be paid out), as well as the initial requested funds for the renovations.

 

Mortgage refinancing solitons vary from person/s to person/s and in order to determine the best approach, it’s important to look at your specific circumstances to really understand what options are available. If you are interested in learning more or are considering taking advantage of mortgage refinancing to meet your needs, please feel free to call us today 905.455.5005