Changed Scenario To Get a Refinance On Bad Credit After Recession

Changed scenario to get a refinance on bad credit after recession

Prior to the credit crunch and recession in 2007, it was possible to get a refinance on your loan in spite of having bad credit. But, now, it has become very difficult to get a bad credit mortgage refinancing on your loan.

If your credit report has very negligible negative points like, a few unpaid bills or a few late payments, you can apply for a loan to the FHA (Federal Housing Association). If they find that your credit report is not too bad, they may do bad credit mortgage refinancing.

The FHA approves an application for refinancing only if the applicant meets its requirements. After the recession, FHA has made some changes in the terms and conditions of a loan. The changes are:

• FHA has reduced the amount of money provided to the buyers by the sellers for closing costs.
• You have to deposit a larger down payment if you have a bad credit score.
• The premium for mortgage insurance has been increased to 2.25% from the existing 1.75%.
• The borrowers will need a minimum credit score of 693 to get the loan. If a person has score lower than this, he will have to pay a huge down payment.
• You need to have steady income of at least 3 years and your income either should remain same or should have increased within this period.
• Your mortgage payment should be at least 30% of your gross income.
• Even if you have a bad credit report, it should not have more than 2 late payments in the last two years.
• You can opt for cash out refinance if you have a significant amount of home equity.
If your credit score is not good, it will be very difficult for you get a refinance on your loan. You can get a refinance from the FHA, but you have to make a larger amount of monthly payments with high interest rate. Therefore, it will be better if you do credit repair first, instead of applying for a bad credit mortgage refinancing.