It seems these days they’re a lot of people with bad credit trying to make ends meet. You may be one of these people, who over time have managed credit badly and are looking for any way you can to rebuild.
It also seems as if many people want to refinance their home from high interest rates to avoid bankruptcy or foreclosure but are uncertain of what they can do to get themselves from falling into the red. In this article I’m going to cover five things you can do right now that will start helping build you credit and get you back on track.
Of all the tips I’m about to share with you doesn’t mean you’ll be able to solve all your problems tomorrow but over time you will see some improvement through following what I am about to share with you.
5 Bad Credit Home Loan Refinancing Tips
- Pay all bills on time. Missing a payment is like the kiss of death when it comes to refinancing your home with bad credit. If you neglect to pay your bills on time you will have a tough time home refinancing with bad credit. So how do you solve this problem, set up a budget and stick to it. The only way you’re going to stick to paying off your bills is by watching them like a hawk. On top of that this is one of the first things lenders will look at and if they learn that you can’t keep your promise you aren’t going to get any help.
- Minimize your debt. When it comes to debt, lenders don’t want you to have more than 36% of income going towards debt payments. In fact the lower you can get this number the better. Just simply add up the income you bring in every month and divide it by the amount of money you spend on debt. Don’t count things like your electric and gas bills, just your debts like credit cards, car loans, and your mortgage payment. If this number is more than 36% look for ways to cut down this debt by setting up a debt snowball plan. To learn more about this plan click here.
- Save extra money. Lenders love it when you save extra money. It shows them that you have extra money at the end of the month and that if you did get in a pinch you wouldn’t be just one paycheck away from foreclosure. Having money in places like saving accounts, CD’s, IRAs, and even your 401k can go a long way to proving you will do what you say. So what should you do, save an extra 15% to 20% of your income for retirement and a rainy day fund and lenders won’t turn you down.
- Get the proper financial documents. In order to even get a loan you need the proper financial documents like pay stubs, bank statements, retirement account statements, W-2’s and even your life insurance policy. These are all things you will want to have. First off, pay stubs are there to prove you have a job. Lenders will only count the first 40 hours of your work weeks pay unless you have been working overtime for the last couple of years consistently. Bank statements will show them what you save and pay debt on, they will usually require the latest last three months worth. Retirement account statements like I said before go a long way to impress the lender. Lenders also like to know how much you make as well, that’s why they need to see your W-2 statements from the last 2 previous years. Finally, show them you have life insurance. In most cases if you have bad credit, poor health, a lender may suggest you have life insurance just in case you pass on.
- Earn extra income. If your still cutting it close you may want to look at finding a second job and earning a second income. Showing a lender that you’re willing to do what it takes can go a long way. When lenders are evaluating you, they aren’t just looking at your financial documents they’re trying get a feel for what kind of person you are. Remember a lender can turn you down for any reason they want to so show them you are a good person. So what should you do, get a second job, start dressing better, be more inviting. These things all go a long way to giving them a good impression and helping you get the loan.
Are You Ready
It’s time to show the lenders what you’re made of, start by listing some of your weaker points financially. For example maybe you have too much debt, don’t save enough, and have too much month left at the end of your money.
List them out and pick one to start with. Then take that one issue and break it down to smaller steps you can complete. For example, let’s say you have too much debt. The first step would be to list all of your debts, and put a snowball plan together. Each step should take no longer than 15 minutes to complete. This way it stops you from focusing on the bigger problem and helps you chunk things down to a more bit size approach.
Refinancing a home with bad credit can be a lot of work but with the proper strategy anyone can do it including you.
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If you have bad credit you have to be realistic about the finance rate you will be charged. It will be higher than a prime loan rate due to being a higher risk to a lender.