Refinancing Your Home for People with Bad Credit-Don't Get RobbedPoor Credit? Need to Refinance Your Home?
1. Research The Going Interest Rate for Subprime Borrowers - Sometimes a reasonable interest rate for a borrower with poor credit will be 1-2 percentage points above the prime rate, but if you are being charged 3-4 or more points above prime for your loan, you are probably being taken advantage of.
2. Make Sure To Get a Few Loan Offers - You should obtain at least 2-3 mortgage loan offers before you commit to working with a lender. Ask for interest rate quotes and estimated loan fees. This will give you leverage when negotiating a lower interest rate and lower closing costs.
3. Excessive pre-payment penalties - Watch out for a pre-payment penalty longer than 6 months to 2 years.
4. Avoid an ARM Loan - If you have a decent interest rate now that is a fixed rate mortgage. It''s probably best to keep that loan before you consider replacing it will a lower interest rate Adjustable Rate Mortgage. After the initial payment lock period of the ARM loan, your interest rate could skyrocket and without good credit behind you, you might not be able to refinance for a lower rate. This is a risky loan for someone with poor credit.
5. Watch For Unusual Fees - Some fees that brokers might add to your mortgage loan that are not completely necessary are:
a) Mortgage origination fees should not be more than 2%.
b) Warehouse Fee - Not necessary
c) Fax Fee - Not necessary
d) Consulting Fee - Not necessary
e) Endorsement Fee - Not necessary
There are several other fees that a broker might add to your mortgage loan. Do your research and make sure that your broker is not charging you unnecessary fees or necessary fees at an inflated rate. For a complete list of "junk fees" that mortgage brokers might try to add to your loan, visit: http://www.mortgagesanity.com.
Consider the penalties to see if it''s worth the cost to refinance your home. Calculate the payments from the time you start the new loan until the pre-payment penalty is up. You will be locked into those payments for the allotted time. Calculate the cost of the fees for refinancing. If you are refinancing to get cash-out, consider getting a home equity loan instead.