10 Mortgage Refinancing With Bad Credit Tips

In the financial world, knowing 10 mortgage refinancing with bad credit tips can be the difference between a mortgage loan approval and certain rejection.  Lenders have many rules and regulations that help them decline risky loan applications.  Understanding how to present your bad credit risk more favorably makes an approval more likely on your loan application.

1. Have a detailed letter of explanation for each derogatory item on your credit report.  Make sure you have documentation!  For example if an ex-spouse was ordered to carry responsibility for specific debts as part of a divorce settlement, but did not, use the divorce decree to document it.   If the illness of a family member led to your bankruptcy—document it with a letter of explanation.  Letters of explanation help the underwriter to see you as a person, with special circumstances, rather than simply a file number with a low credit rating.
2. Get letters of references from non-traditional credit sources.  Provide documentation from companies that typically do not report to credit bureaus regularly.  Obtain pay history statements from cable companies, auto insurance providers, telephone companies, and even internet service providers, showing that your accounts have been paid on time according to agreements.
3. Contact a HUD approved credit counselor for a listing of approved counseling classes in your area.  With proof of attendance to a HUD Housing Counseling course, attendees with lower credit scores may receive more favorable consideration during underwriting with certain lenders and loan programs.
4. Accentuate the positives of your application.  Step away from your low credit score by highlighting the positives.  If you have assets, have many years on your current job, have lived in your home for long time—be sure to bring those items to the forefront during the process.  Also, draw attention to the favorable effects of a mortgage refinance on your bad credit.  Will a refinance lower your payments?  Consolidate some high interest debt? 
5. Apply at different types of lending institutions.  Begin with your personal bank—and then move on to a community credit union or other local bank, then progress to a larger mortgage lender or a mortgage broker who would have access to a larger, nationally-based portfolio of programs for those with bad credit.
6. Don’t change jobs or make any large purchases with credit.  The application must show some stability—and some spending restraint--or you continue to be viewed as risky or irresponsible.
7. Make sure that your home is appraisal ready.  If your credit is bad, it is even more important that the house be in tip top shape for the appraisal.  You are convincing a lender to take a risk on your credit history—offering up a less than perfect property to warrant that risk only lowers your chances of receiving an approval.
8. Consider asking a family member to co-sign.  If you have access to a family member with better credit, their guarantee of the loan may yield an approval.  This can be a difficult step—but may be the only option available in some credit situations.
9. Dispute any incorrectly reported credit items on your credit report.  It may take 30 to 90 days to have erroneous items corrected on the credit report but it can certainly help increase the credit score and increase loan options and potential for success.
10. Know your rights.  Be familiar with the (FACTA) Fair and Accurate Credit Act, the Equal Credit Opportunity Act (ECOA) and the Fair Debt Collection Practices Act (FDCRA).  The laws are there for your protection and can sometimes be used to your advantage as well.

 Sources: 

   Federal Reserve Board Refinancing Tips, http://www.federalreserve.gov/pubs/refinancings/default.htm