Reasons to consider refinancing your home
Did you know that mortgage rates are hitting record lows, averaging around 2.8%? Whether you are looking to buy a new house or refinance your home, this is great news for anyone looking to get a new mortgage. Hearing about low mortgage rates may not be enough to convince you that refinancing your home is a good idea.
What do these low-interest rates mean for you, the homeowner?
If you are considering refinancing your home, it could mean lowering your monthly expenses. Refinancing will give you an entirely new mortgage with lower interest rates.
If you bought a house while interest rates were much higher, this could be a great financial move for you. That is why many people are jumping on the opportunity to refinance while the rates are still low.
Refinancing can also give you the financial stability you need to pay off debt or finish home improvement projects you have been wanting to do. Certain refinancing options can put cash in your pocket quickly. This may be able to help you with your specific financial circumstances.
If you are still not convinced, here's how refinancing your home can save you money:
It will change your interest rate
As mentioned before, mortgage interest rates are at an all-time low. When you refinance your home, you will get an entirely new mortgage. This means you will get an entirely new interest rate as well.
Depending on the refinancing option you chose, your new interest rate could end up saving you money. Talk to different lenders about interest rates on your refinancing options.
It can remove mortgage insurance
Mortgage insurance is sometimes necessary for first-time homebuyers or people who take out certain loans. If you have paid off enough of your loan, you may qualify to remove the insurance from your mortgage.
Refinancing will allow you to keep the extra money you would have been paying towards mortgage insurance. Talk to your lenders to see if removing mortgage insurance could work for you.
It could change your mortgage terms
Refinancing your house could allow you to change the terms of your loan. This could mean changing the length of the loan, depending on what fits your needs.
If you want to pay off your loan more quickly, you could shorten the term length of your mortgage. If you were looking to lower your monthly costs, you might consider lengthening your mortgage term cost.
You can cash out
Certain refinancing options can allow you to cash out on your home equity. If you owe less on your mortgage than what your house is worth, you could end up being able to take some of that money home.
This can give you a quick influx of cash that you can use to pay off other debts that are acquiring more interest.
Can I refinance with bad credit?
Now that we have gone over the benefits of refinancing, it's time to talk about how. If you have bad credit, you may not think refinancing is even possible for you. That is simply not the case.
There are several different options you can look into when considering to refinance with bad credit. But before we get into that, it is important to remember to find an option that works best for you and your financial situation. There are a few things to consider before you start diving into refinancing options.
Have a plan
- Make sure you have a clear idea of what you want.
- What do you want to accomplish by refinancing?
- Are you looking to cash out and get money quickly or lower your monthly costs?
Since there are many different refinancing options, there are many possible financial outcomes for you. Having an idea of what you want to get out of refinancing your house will be able to give you a starting point of where to look for options.
Have a good sense of your income and savings
- Collect bank statements and proof of income to create an accurate budget for yourself.
- Make sure you also know the value of your home and monthly costs before starting the refinancing process.
Having a good grasp of your financial situation will enable you to find a refinancing option that will best fit your needs.
Know the costs
Refinancing can save you money, but there are often upfront payments on certain refinancing options. Make sure you are aware of any expenses that you may have to pay when refinancing.
When talking to different lenders, ask them about upfront costs and any payments you would have to make. This will help to budget properly and get a better sense of if refinancing is right for you.
Know your exact credit score
Different options are available for different credit scores. Certain lenders may consider you for refinancing loans even if your credit score is considered low. Knowing exactly where your credit score stands will determine how you can proceed with refinancing your home.
Know your options
Be sure to compare all of your options and take time to do your research before committing to a refinancing option. Some refinancing options may not be good for your financial situation.
Shop around for different rates from different lenders. This will help ensure you are getting the best deal and saving the most money. Having a comprehensive understanding of the refinancing field, as well as the current housing market, will help you make the right decision.
Options for refinancing with bad credit
Refinancing with bad credit may be more difficult, but it is not impossible. In fact, it may be easier than you think! Many different refinancing options could fit your needs.
Once you have taken the steps to prepare, take a look at this list of options to refinance your house with bad credit.
Apply with a co-applicant
One of the simplest ways to refinance a home with bad credit is to apply with a co-applicant who doesn't live with you. If your bank account and credit score do not convince the lenders that you would not be a risk, then this may be a good option for you.
A co-signer will ensure the bank or lender that they will get paid for the due amount, even if your account and credit score doesn't represent that. It may be difficult to find someone to co-sign with if you have a low credit score, so consider applying with people you are close with.
Cash-out refinancing
Cash-out refinancing is a great option if you owe less on your mortgage than what your house is worth. If your house market value has increased since you bought it, you will earn equity.
Equity can either be cashed out when selling a home, or when refinancing a home. If you have other outstanding debts that need to be paid off or have a lot of home improvements, Cash-out refinancing may be a good option for you. However, cash-out refinancing loans tend to have slightly higher interest rates because they are higher risk to the lender.
If reducing your monthly cost is your goal, this may not be the best option for you, but if not it could end up saving you money elsewhere.
FHA streamline refinancing loans
FHA streamline refinancing loans can be a quick and easy way to lower your interest costs. When considering FHA streamline refinancing, there are two options.
Credit qualifying and non-credit qualifying. If you have a bad credit score, the non-credit qualifying option could be a better fit for you. This option does not require the lender to review your credit score and credit history to refinance. This could allow you to lower your monthly rate without providing new information or documentation.
The credit qualifying option does require you to share your credit score and credit history with your lender, but it also usually has a lower monthly interest. Depending on your financial situation and credit score, this option could end up saving you more money.
When considering an FHA streamline refinancing loan, there are a couple of things to keep in mind. You will not be cashing out your equity with this loan, so you will not see a sudden influx in money. This refinancing option will allow you to save money over time by lowering your interest rates and monthly costs. You will also have to pay closing costs, so you will need to make sure you are in a financial situation where you can front the money.
Improve your credit score
If none of these options work for your personal situation, or your credit score is too low for the option you want to do, you can try to improve your score. Improving your credit score could open doors for you that will allow you to refinance your home differently.
Start to increase your credit score by making sure all of your bills are paid on time. This will show you are reliable for payback options to lenders and will look good on your credit report.
You can also consider using a credit card for small purchases to build your credit, but be careful with this option. You want to reduce your debt, not increase it. Only consider opening a new credit card if you have paid off your other debt, or try to pay off your outstanding debt before opening the card.
Save money in a way that is good for you
Co-applicants, cashouts, FHA loans, and improving your credit score are all easy, viable options for refinancing with a bad credit score. Don't let your credit score get in the way of what you want to do.
Whether you want to save money on monthly expenses or are hoping to cash out, your bad credit doesn't have to be a roadblock. Refinancing your house could be a great way for you to put money back in your pocket, but it's also not the only way to save on your home expenses.
So if you are wondering, can I refinance with bad credit? Yes! But refinancing may not make sense for your specific circumstances. After researching your options, you may find that you are not comfortable with refinancing.
Another possibility is that you find out the refinancing option you wanted to do is not possible with your financial or credit situation. You also may start the process of refinancing and find out that your house has increased significantly in market value since you bought it.
Interested in your home's current market value? Receive a free online home value estimate!
Since the housing market has been increasing, you may decide that selling your house is a better financial opportunity for you. If you decide to sell your house instead but are still worried about costs, you can consider selling to a cash offer.
Cash offers can make your selling process faster and easier and can help reduce upfront costs. If you want to sell your house, you can find out your house value and get a no obligation cash offer!