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Advice for bad credit mortgages
If you have an adjustable rate, you need to make sure that you qualify when the time comes to refinance. Now that credit underwriting is getting tighter, you can’t afford to be buried in credit card debt when it’s time to refinance.
Chances are, a fixed rate loan is going to still be low whether you refinance to a fixed rate this year or next. Your ARM rate, however, will continue to climb because that’s what the fine print said it would do. The formula for calculating your new rate is complicated and very seldom means your rate will go down.
What you can do right now: Determine what your credit score is and start working to clean up the issues that are keeping it under 720. Clean up the debt that is NOT house related and at the same time make sure you have 12 months in a row that the mortgage is paid ON TIME. Do not go 30 days late and if you can, get the payment credited before the late fees kick in on the 16th.
When you approach a mortgage company to refinance into a fixed rate, be able to show that you have reduced your debt or you are paying a certain amount every month toward reducing your debt and yet you are STILL making your mortgage payment on time. This, more than anything, shows an underwriter that giving you a new, fixed rate loan will only help you and is less of a risk for you and the mortgage company both.
Know this about what an underwriter is thinking: The loan you already have might be going up and making your life miserable, but if that loan was approved by somebody else, then the risk is with that somebody. No underwriter wants to put a new risky situation under their name, especially if it appears you are about to go under.
Worst case: get a 2nd job or a part-time job so you can accomplish what I laid out above. Then go to the mortgage company who approved you or who is holding the mortgage now and say – here’s what I am doing to improve my position. Moving me to a fixed rate loan will improve my chances of keeping the house and eliminating my other debts.
Once you have eliminated your debts and refinanced to a fixed rate – then do this from now on – it works: When you get a raise, or a promotion, or unexpected money in your life – 1st put that amount into a savings account. The next time you get a raise, etc. , then improve your lifestyle with a better car or some classes, or maybe a new dishwasher. If you trade off every other time you get a raise in income: one for the savings account, next one for our life – before you know it, you’ll have an emergency fund that keeps you from borrowing at high rates, and your life will improve because you’re not overpaying for everything.
Good luck to you!
