How Can I Lower My Mortgage Payment With Bad Credit

Give Yourself A Credit Cushion

The second-largest component in your credit score is: How much credit do you have in your name, and its good to have a lot of it!

Its a counter-intuitive concept.

Lenders want you to have vast amounts of credit because they know life is unpredictable. When things go sideways for you, those large credit lines can keep you afloat, so you have money to keep paying on your mortgage.

Play this to your advantage. On the back of every credit card you own, youll find a customer service number. Call it and request an increase in your credit limit.

You could reap 50-point gains or more.

Keep Your Credit Utilization Low

Lets say you have a credit card with a $10,000 limit and you put $5,000 worth of expenses on it every month. In that case, you have a utilization ratio of 50%. If you use 100% of your available credit, you might hear someone say that youve maxed out your credit.

Lenders dont like to work with borrowers who have very high credit utilization ratios. Using too much of your available credit tells lenders that you might not have anything in savings. It can also mean that youre more likely to fall behind on your bills or miss a payment.

Keep your utilization ratio low month after month to raise your credit score. Your utilization ratio makes up about 30% of your FICO® Score.

Your score will generally increase if you keep your utilization ratio at or below 30%. For the biggest bump in your credit score, keep your utilization ratio below 10%. Carrying more cash with you, paying down your charges immediately and budgeting your money are all easy ways to lower your utilization.

Homebuyer Assistance Programs: 580 Minimum Credit Score

Homebuyer assistance programs rarely enforce credit score minimums. Instead, they adopt the standards of their accompanying mortgage.

For example, if youre a home buyer who uses a conventional mortgage with a 620 credit score requirement, the homebuyer assistance program you use for a down payment will also use the 620 minimum.

For more information about homebuyer assistance programs and grants for first-time home buyers, visit us in the chat.

Get pre-approved for a mortgage today.

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Refinance To A Longer Term Mortgage

Getting a shorter loan term can help you pay off your debt faster, but they come with higher monthly payments.

For example, if you took out a 15-year mortgage a few years ago and realized the monthly payments are too high. Refinancing into a longer loan term can significantly lower your monthly payments.

Keep in mind:

Read On: Loan Modification vs. Refinance: How to Decide

Use An Fha Streamline Refinance

If you currently have an FHA-insured mortgage, you may qualify for an FHA streamline refinance. In the streamline refinance process, the lender may only ask you for certain documents. For homeowners with poor or bad credit, a streamline refinance process can be simpler and may have a higher chance of success.

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Shop Around For The Best Rate And Terms

Start by checking with your current lender. They may be willing to work with you to obtain a better rate. However, dont limit yourself. Check with several different lenders to find the best rates and terms, including online lenders and credit unions. On average, borrowers who request a rate quote from one additional lender save $1,500 over the life of the loan, according to Freddie Mac. The average savings go up to $3,000 with five additional rate quotes.

Learn Where Your Credit Stands Before Applying For A Mortgage

It’s good practice to find out what your credit looks like before applying for a mortgage. You can check your credit score for free with Experian you can also opt to get the scores that mortgage lenders use. If your credit score is already above 700, you may not need to make many improvements before applying for a mortgage preapproval.

But, if you suspect your credit score is too low to qualify for a mortgage with lower interest rates, consider getting a copy of your credit report from Experian to spot potential credit issues. If you find any information you believe to be erroneous or fraudulent, immediately dispute the information with the three major credit bureaus, Experian, TransUnion and Equifax.

Also Check: How To Invest In Second Mortgages

Is It Worth Getting A Heloc With Bad Credit

Taking out a HELOC can be worth it even with a low credit score. Compared to other options, like credit cards and personal loans, this is usually one of the cheapest ways to borrow a large amount of cash.

A HELOC, even with a high interest rate, can be worth it if you want to make home improvements that boost the value of your property or to consolidate credit card debt, which carries way higher interest than a HELOC with bad credit, notes Solomon.

In addition, it might not matter that you have a higher HELOC rate if you plan to pay the debt off quickly.

HELOCs often come with a draw period of around 10 years during which you can borrow up to your credit limit and make interest-only payments. This is followed by a repayment period of 10-20 years when you can no longer tap the credit line and must repay your loan balance in full.

But you dont have to stick to your HELOCs extended repayment schedule. Instead of making interest-only payments during the draw period, you could pay off what you borrow as you go. Or, you could make accelerated payments during the repayment period to zero out your balance sooner. Either strategy would reduce the amount of time youre paying interest and save you money in the long run.

Which Home Loan Company Is Best For Bad Credit

We give our top rating to eMortgage. It excels in connecting you to multiple home loan offers from competing bad credit mortgage lenders or mortgage broker companies.

You need only fill out one short loan request form to get up to five quotes within two minutes.

Wells Fargo Home Mortgage receives a slightly higher score among the direct-lending banks, thanks mostly to its Easy to OwnSM programs that are optimized for applicants with limited credit history, low income, and low down payments. The bank offers some home loans that do not require monthly mortgage insurance, an unusual feature.

Any bad credit mortgage lender allowed to participate in a government-guaranteed home loan program must meet certain standards that help ensure honest dealings.

Perhaps your biggest concern when applying for a guaranteed loan is bait-and-switch tactics, where a bank offers, say, FHA mortgage loan deals but then tries to get you to choose its own conventional home loan products instead. Thats fine as long as its a truthful, above-board effort.

Read Also: What Is Included In Apr For Mortgage

Refinance To Lower Your Interest Rate

One of the best ways to lower your mortgage payment is by refinancing your mortgage to get a lower interest rate. A mortgage refinance involves replacing your current mortgage with a new one.

There are plenty of refinance options to choose from. Some require the full vetting process you underwent when you first bought your home. The lender verifies your income and credit and requires a home appraisal to determine your homes worth. There are also streamline refinance options that allow you to skip income documentation and dont require appraisals.

Here are some refinance programs worth knowing about:

Conventional rate-and-term refinance. This type of refinance is also called a limited cash-out refinance and typically involves paying off your current loan balance with a new loan at a better interest rate. You can roll your closing costs into the loan, but keep in mind your monthly payment will be higher if you do.

FHA streamline refinance. Homeowners with a current loan backed by the Federal Housing Administration can avoid the hassle of income documents and an appraisal with an FHA streamline refinance. One caveat: Youll need to budget cash for your closing costs because this program doesnt allow you to add the costs to your loan amount. However, some lenders may offer a no-closing-cost option if youre willing to accept a higher interest rate.

Use LendingTrees mortgage refinance calculator to estimate how much you can save based on current interest rates.

First Off Whats Bad Credit

• Fannie and Freddie require a credit score of 620 or better to get a home loan
• VA loans and USDA loans dont have minimum scores, but most mortgage lenders still require 620+
• FHA can go as low as 500 if you have 10% equity in your home
• Otherwise you need at least a 580 FICO score for max financing

While opinions may vary, bad credit is typically defined as a sub-620 FICO score in the eyes of mortgage lenders, though even scores a bit higher might be viewed with some disdain.

But ultimately, 620 is the hard line in the sand, and the minimum score accepted by both Fannie Mae and Freddie Mac, which back or buy the majority of home loans today.

For government home loans, such as USDA loans and VA loans, there isnt a minimum credit score, but lenders impose them anyway to mitigate their risk.

These will vary by bank and lender, with many requiring scores above 600, and some allowing scores in the 500 range.

When it comes to FHA loans, you need a 580 FICO or higher to get maximum financing , otherwise youll be required to put down 10% or have 10% equity for scores down to 500.

So first you need to determine where you actually stand credit-wise, then you can assess how bad the situation is and who will accept you.

Some may think theyre in worse shape than they really are, and vice versa. Knowing what your particular credit score means will help you better understand your options.

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Reduce Homeowners Insurance Premiums

Mortgage lenders require you to maintain replacement-value insurance on your home to protect their loan. But there are usually multiple insurance companies willing to write a policy, and some charge less than others for equivalent coverage. Periodically check with other insurers to make sure you have the best deal, and do some rate shopping tolower your homeowners insurance if you dont.

Study the various clauses and riders, too. Make certain youre not buying more coverage than you need.

Hint: Check with the company that insures your car. Companies often offer discounted bundled rates if you have more than one policy.

Should I Refinance My Mortgage To Get Rid Of Credit Card Debt

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Taking on a new mortgage to get rid of credit card debt may seem extreme, but for some consumers in certain situations, it may actually pay off. Because mortgages generally have much lower interest rates than credit cards, you could save significant money in interest. However, this repayment method also has a few considerable drawbacks. For example, you’ll have less equity in your home than you had previously.

Refinancing your mortgage to pay off credit card debt is a big decision and should only be considered if your debt reaches into the tens of thousands of dollars and is growing via interest every day. It’s generally not a good solution for an amount, such as a few hundred or a thousand dollars, that you may be able to tackle with a long-term repayment effort. Before you make a decision one way or the other, it’s important to know what you’re getting into.

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Improve Your Credit Score

The better your credit score, the lower the interest rate a lender will likely grant you, and the better chances you will have to refinance. To boost your score, first, get a copy of your credit reports from all three credit bureaus , and correct any errors you see on these reports that might be lowering your score.

Going forward, pay all of your bills on time , dont take out several new credit lines at one time, and pay down your total debt load, especially if youve nearly maxed out all your lines of credit.

If you have extremely bad credit, you may not be able to get a credit card, which means youll have trouble showing lenders that going forward, you can pay your bills on time. In this case, consider getting a secured credit card. With these cards, you can only charge the amount you have deposited in a specified account. You dont have to pay the card off in full each month, but if you dont, you will be charged interest.

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Rhs Guaranteed Loan Program

To reduce your payments on a Rural Housing Service Loan Program you have a few options available including:

Special forbearance. You can agree with the servicer to temporarily reduce or pause payments. You will then have a repayment plan put in place.

To be accepted for this you must have had a loss of income or increase in expenses and your payment has to be 30 days in arrears.

Modification. It is possible to permanently change your loan terms with a modification. There are two types available: a standard modification or a special loan servicing modification.

Speak to the people who know how to lower mortgage payments with bad credit. Contact GoCleanCredit.com for expert advice and your full range of options.

Refinance With A Lower Interest Rate

A lower interest rate can mean big savings. For example, on a $200,000 30-year-fixed loan, reducing the interest rate 1% can mean a monthly savings of almost $120.

If youre looking to lower your mortgage payment, keep an eye on the market. Look for rates that are lower than your current interest rate. When mortgage rates drop, contact your lender to lock your rate.

Another way to get a lower rate is to buy down your rate with points. Mortgage discount points are upfront prepaid interest paid as a part of your closing costs to get a lower rate. Each point is 1% of the loan amount. For example, on a $200,000 loan, one point would cost you $2,000 at closing. One mortgage point generally results in an interest rate reduction of .25% to .5%.

Whether discount points make sense for you is generally a matter of how long you plan to stay in the home. If you only see yourself in the home for a few more years, its probably less expensive to pay a slightly higher interest rate. However, reducing your rate by half a percent could save you thousands over the course of a 30-year loan.

Keep in mind that mortgage refinances are different from a mortgage recast, which is a lump-sum payment you pay toward your remaining principal. Both, however, may give you an opportunity to cut down on your mortgage bill.

Get approved to refinance.

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Min. credit score

Min. down payment

New American Funding works with down payment assistance programs in 14 states, including California, Texas, Florida and Illinois.

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Why we like it

Good for: borrowers who need to be evaluated on the basis of nontraditional credit and those interested in various down payment assistance programs.

Pros

• Uses manual underwriting to evaluate creditworthiness, in some cases.

• Offers full online mortgage application, rate quotes, document upload and loan tracking.

Cons

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When You Should Rent Vs Buy

Your credit score can offer insight into whether you should rent or buy. Lenders use your credit score as a crystal ball to predict how likely you are to repay a mortgage. But they dont actually know you. What do you think about your credit score? Does it say more about the type of borrower you are today or the type of borrower you were in the past?

If you have a bad score because you didnt understand how to manage credit, but youve learned since then because you went through a rough patch, but youre fine now or because a divorce or identity theft trashed your credit, you might be comfortable buying a home now if you can get a loan despite your credit score.

If you have a bad credit score because youre not good at making payments on time or you tend to overspend, renting while you improve your habits is probably the wiser option.

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