How to Refinance My Home With Bad Credit & a Low Income

In tough financial times, many people are faced with making decisions about their homes and other personal debts. Unemployment and underemployment can lead them to refinance their mortgages to reduce monthly payments, but months of job-seeking or juggling debts might have hurt their credit ratings. Many banks have now new, stricter requirements for refinancing mortgage loans. But some initiatives through the Department of Veterans Affairs and the Federal Housing Administration offer refinancing options to people who qualify.

Instructions

1

Set a goal for the total monthly payment you can afford in your current financial circumstances. Calculate your net income and budget in items such as transportation, credit card repayments, student loan repayments, food, clothing and other essential monthly expenses to determine your disposable income for mortgage payments.

2

Check your credit reports from the three major credit bureaus: TransUnion, Experian and Equifax. Look for reports of judgments, slow payments, delinquencies and charge-offs (accounts abandoned by the creditor because you appeared unable to repay), because these incidents influence lenders' decisions about refinancing.

3

Search for a suitable refinancing lender who is willing to be flexible with income and credit-rating requirements. The Department of Veterans Affairs and the Federal Housing Administration both offer programs to assist people who can't secure refinancing elsewhere. Check their websites for eligibility requirements.

4

Gather financial documents needed to begin the application process. Most lending institutions will require past tax filings, W-2 forms, pay stubs or other proof of income, and copies of your bank account statements. Be prepared to explain any unfavorable items in your credit history.

5

Obtain the payoff information for your current mortgage. This information is crucial for the application process, as you will need to know how much you are refinancing. In addition, the lender will want to know what your house is worth now.

6

Submit an application for refinancing. Once you've identified potential lenders, obtain an application and provide the required documents.

7

Await the decision of the financial institution. If approved, be certain to understand all terms of the refinanced mortgage, including whether the monthly payment includes any fees and service charges, and whether the monthly amounts can increase over the life of the refinanced mortgage.