Mortgage Refinancing Options for Clients with Bad Credit

4 Mortgage Refinancing Options for Homeowners with Poor Credit Scores

Loan officers can reassure their clients with poor or bad credit scores that they have the option to refinance despite their low credit scores. Here are four options that homeowners have when it comes to mortgage refinancing with low credit scores.

two men discussing mortgage refinancing options

  1. Apply Through Current Lender or Shop Different Lenders

Clients may apply to refinance their mortgages through their current lenders or choose to shop around to compare rates. This allows clients to explore for themselves what their options are. As their loan officer or lender, you can take the time to speak to them about their options and concerns.

  1. Federal Housing Authority (FHA) loans have refinancing options for people with credit scores below 600. FHA loans are insured by the federal government and have availability through many lenders. A few FHA loan options include: Investigate Federal Housing Authority (FHA) Loans

This option allows clients to refinance an FHA loan if they’ve made 12 on-time mortgage payments. This option results in a lower mortgage payment.

FHA rate-and-term refinance

Clients can refinance a conventional loan into an FHA loan, but they won’t be eligible for the streamlined process. They’ll also need to supply income and credit verification and show 12 months of on-time mortgage payments.

FHA cash-out refinance

An FHA cash-out refinance option allows clients to get a new home loan larger than a previous loan, plus cash for the difference. Clients qualify with at least 20 percent equity in their home and a history of on-time payments for 12 months or the loan term’s length.

  1. Cash-out Refinance or Remove Mortgage Insurance

A cash-out refinance replaces a homeowner’s existing mortgage with a new home loan for more than they owe on their home. The difference goes to the client, and they can spend it however they wish – home improvements, debt consolidation, or other financial needs.

This refinancing option also allows clients to pay down debts owed to get them back on track financially. This mortgage refinancing option is easier for clients with poor credit to secure.

man calculating his mortgage refinancing plan

  1. Look at Veteran Affairs Options, If Eligible

Clients that are active-duty military service members or veterans may qualify for a Veteran Affairs loan. Clients with an existing VA loan can take advantage of the interest rate reduction refinance loan (IRRRL) to lower their monthly payments – without worry about their credit score.

If your credit score is low and you’re seeking a mortgage refinancing option that fits into your financial plan, contact your loan officer today. When you need a fast title search to complete a mortgage refinancing, call TitlePlus in Baton Rouge.