Refinance Your Home with Bad Credit (bad credit mortgage
If you currently have a bad credit loan, you
may now be eligible for a mortgage refinance to a prime rate or “A Paper” loan. Mortgage refinancing requires more documentation than it did five or six years ago when
no-documentation loans were prevalent. If you have maintained an improved
financial picture, and are thinking of refinancing, now is the time. Rates for all types of mortgage loans are low. Gathering the following
documentation ahead of time can help you prepare for some of the paperwork required for a refinance away from your
bad credit mortgage.
Two forms of government issued id, one with
your photo. A few examples are a passport, driver’s license, state id, social security
card. Make a legible copy for the lender.
If you bank online, download your bank
statements covering the most-recent two months. Make sure the statement shows your name, address, starting and
ending balances and a partial or full account number. The lender will want
actual statements, not a transaction history. A transaction history
doesn’t document the account holder information.
If a portion or all of your income comes from
commission or bonus income, you are self-employed or you own an investment property, you will be required to
show the most recent two years tax returns. The tax returns will need
to have been filed with the IRS. If you are self-employed,
1099s are considered part of the tax return. Make sure you have those,
too. If your tax returns reveal declining income, expect the lender to ask for additional
documentation. Income stability is crucial if you expect to qualify for a good credit
Make a copy of your Social Security Awards
Letter or Pension/Retirement Letter, if you have recently retired. If you are employed you will need to show
your most-recent paystub and W-2.
If you have investment property or own any
other real estate, gather last year’s property tax statement and property insurance declaration
page. Your loan officer will need to include the tax and insurance amounts in your debt-to-income
ratios, and will need this documentation, too.
If your credit report shows any inquiries, or
multiple addresses, you may have to write a letter explaining what the inquiries were for, and state whether or
not a new account was opened. If your credit report
shows multiple addresses, don’t be alarmed. This is very common since
credit reporting agencies don’t update your known addresses, and your prior residence from a decade ago may
still be showing. You may have to write a brief explanation of this address.
Even though some of the documentation requested doesn’t make your ability to pay back the loan any stronger, and
may seem unreasonable, tighter federal lending regulations require it, regardless of credit, income or
assets. Knowing what to expect, and being prepared
ahead of time will help your mortgage refinance process go smoothly.