How Do You Refinance a Home With Bad Credit?


Quick Answer

If you have bad credit, refinance your home by taking steps to improve your credit, lowering your debt-to-income ratio and showing you have a firm income history, notes Lon Jefferies of USA Today. You should also get a copy of your credit report and check it for accuracy.

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Full Answer

To improve your credit, pay all of your bills on time, pay more than your minimum monthly payments and pay down your existing credit cards as much as possible, says Jefferies. It's also best that you not apply for any new credit cards or loans in the few months before refinancing your mortgage.

Keep the total of your debt and monthly mortgage expenses below 43 percent of your total monthly income, notes Jefferies. Taking these steps can improve your standing with your lenders. You should also have evidence of liquid assets in addition to a stable income history to reassure lenders you can make consistent payments on your mortgage. You can also potentially better your rate if you have equity in the property.

Once you've been approved for refinancing, avoid private mortgage insurance by paying at least 20 percent on your down payment, says Jefferies. As of 2012, PMI insurance can cost anywhere between $50 and $200 a month.

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