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How to Refinance Your Mortgage With Bad Credit

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Our goal here at Credible is to give you the tools and confidence you need to improve your finances. Although we do promote products from our partner lenders, all opinions are our own.

A low credit score doesn’t mean you can’t refinance your mortgage. In fact, there are many refinancing options to consider if you have bad credit.

If you have bad credit and are looking to refinance your mortgage, here’s what you should know:

How to refinance a mortgage with bad credit

If you have poor credit and aren’t sure where to start, follow these steps to get started:

  1. Improve your credit score
  2. Consider a co-borrower
  3. Compare bad credit mortgage refinance programs
  4. Check with your current lender
  5. Compare rates from multiple lenders

1. Improve your credit score

After checking your credit and knowing what your current credit score is, it’s a good idea to see how you can improve it before applying for your refinance.

To improve your credit quickly, here are a few things you can try:

  • Ask for a credit line increase on a current credit card
  • Become an authorized user on someone else’s account or credit card
  • Pay off your debt as much as possible
  • Don’t close old accounts (like credit cards)

Learn More: How to Improve Your Credit Score in 5 Steps

2. Consider a co-borrower

If you have a spouse, partner, or trusted friend with good credit, consider asking them to apply for the loan with you.

With their name on the application, lenders will look at both credit profiles and incomes, giving you a better shot at approval if your co-borrower is more creditworthy.

Just make sure the co-borrower understands their obligations. For example, if you’re unable to make payments on the loan, they’d have to repay it.

3. Compare bad credit mortgage refinance programs

Next, you should research bad credit refinance programs to see which loans you might be eligible for. Having a good idea of what loan product you’ll be using can help you when shopping around for lenders.

4. Check with your current lender

Get a refinancing quote from your current lender. If you’ve paid your loan on time consistently and have a good history with them, they might be willing to refinance your loan without a credit check — or at least look past that score and consider other factors when evaluating your application.

A current and solid relationship with a lender can go a long way, so it never hurts to ask.

Keep Reading: How to Refinance Your Mortgage in 4 Easy Steps

5. Compare rates from multiple lenders

Comparing rates from multiple lenders is one of the best ways to find the best loan and interest rate for you — whether you have good or bad credit.

Credible Operations, Inc. lets you shop for prequalified refinancing rates from all of our partner lenders in the table below by filling out just one form.

Requirements to refinance your mortgage with bad credit

Scenarios Is refinancing student loans a good idea?
You have high-interest student loan debt Yes, you should refinance
You want to pay off your debt early Yes, you should refinance
You want to switch interest rate types Yes, you should refinance
You have multiple loans and want to simplify your payments Student loan refinancing probably makes sense
You have reliable income and good credit Student loan refinancing probably makes sense
You’re eligible for student loan forgiveness No, you shouldn’t refinance
You have low or unsteady income No, you shouldn’t refinance
You have poor credit and no access to a creditworthy cosigner No, you shouldn’t refinance
Your loan already has a low interest rate No, you shouldn’t refinance

Find Out: When to Refinance a Mortgage: Is Now The Best Time?

Pros and cons of bad credit mortgage refinance options

FHA rate and term refinance

Rate and term refinancing is intended to help borrowers change their interest rate, loan term, or both. This often results in a lower monthly payment.

Pros:

  • Lower credit score requirements
  • Can be used to refinance non-FHA loans
  • Can refinance up to 97.5% of your home’s value, but a lower cap applies with a lower credit score

Cons:

  • Requires mortgage insurance
  • No cash-out allowed
  • Requires new appraisal

Learn: How to Get the Best Mortgage Rates

FHA cash-out refinance

With a cash-out refinance, you can replace your existing mortgage loan and take out some extra cash from the equity you have in your home.

Just keep in mind, your new loan will have a higher balance, which could mean a higher monthly payment.

Pros:

  • Low credit score requirements
  • Can be used to refinance non-FHA loans

Cons:

  • Requires mortgage insurance
  • Requires new appraisal
  • Can only refinance up to 80% of your home value

FHA streamline refinance

FHA’s streamline program is designed to ease the refinancing process for existing FHA borrowers.

In many cases, it requires no appraisal, no credit check, and no income verification, and documentation requirements are reduced.

Pros:

  • Credit check might not be required
  • Appraisal might not be required

Cons:

  • Requires mortgage insurance
  • Must already have an FHA loan

VA rate and term refinance (IRRRL)

The Department of Veterans Affairs also offers a rate and term refinance program called the Interest Rate Reduction Refinance Loan (IRRRL).

It’s only available to eligible military members, veterans, and their spouses (under limited circumstances).

Pros:

  • No credit or income check
  • No appraisal
  • Can roll your refinancing costs into your loan
  • No mortgage insurance
  • Could refinance up to 100% of your home’s value

Cons:

  • Only available to eligible veterans and military members
  • You must already have a VA loan
  • Requires a funding fee

Check Out: Refinance Closing Costs: How to Lower and Avoid Fees

VA cash-out refinance

You can also do a cash-out refinance of existing VA loans if you’re a military member or veteran. The VA also allows you to finance your closing costs, making the refinance very affordable.

Pros:

  • Can roll your refinancing costs into your loan
  • No mortgage insurance
  • Could refinance up to 100% of your home’s value

Cons:

  • Only available to eligible veterans and military members
  • You must already have a VA loan
  • Requires a funding fee
  • Requires an appraisal
  • Requires a credit check

Alternative or non-prime lending

If you don’t qualify for any of the above programs, seeking out an alternative or non-prime lender could be your best bet.

These lenders don’t use the same standards as FHA, VA, and other government-insured programs, so they typically have less strict requirements when it comes to credit score.

Pros:

  • Might allow lower credit scores than other programs
  • May allow bankruptcies, foreclosures, etc.

Cons:

  • Usually come with higher interest rates and fees
  • Requirements vary greatly from one lender to the next
Find out if refinancing is right for you

  • Actual rates from multiple lenders – In 3 minutes, get actual prequalified rates without impacting your credit score.
  • Smart technology – We streamline the questions you need to answer and automate the document upload process.
  • End-to-end experience – Complete the entire origination process from rate comparison up to closing, all on Credible.

Find My Refi Rate
Checking rates will not affect your credit

About the author

Aly J. Yale

Aly J. Yale

Aly J. Yale is a mortgage and real estate authority and a contributor to Credible. Her work has appeared in Forbes, Fox Business, The Motley Fool, Bankrate, The Balance, and more.

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Bad Credit

Fall 2020 Brings Increased Regulatory Focus on Financial Institution Detection of Human Trafficking | Moore & Van Allen PLLC

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On October 15, 2020, the Financial Crimes Enforcement Network of the U.S. Department of Treasury (FinCEN) released its Supplemental Advisory on Identifying and Reporting Human Trafficking and Related Activity (Supplemental Advisory). The last time FinCEN provided guidance on identifying trafficking in anti-money laundering (AML) processes was in Guidance on Recognizing Activity that May be Associated with Human Smuggling and Human Trafficking – Financial Red Flags on September 11, 2014. The evolving tactics of human traffickers and behaviors of victims required updated guidance in order for financial institutions to better meet Bank Secrecy Act (BSA) obligations to assist the government in detecting and preventing money laundering. 

The Supplemental Advisory focuses on four emerging tactics used by human traffickers to carry out and hide the proceeds from their illicit operations: front companies, exploitative employment practices, funnel accounts, and alternative payment methods. Front companies are lawful, licensed, and registered businesses which are used by traffickers to comingle the illicit proceeds generated from their scheme of human exploitation with that of a legitimate business. Examples include massage parlors, nail salons, even electrician services, and faith-based mission work. 

Labor trafficking can be harder to detect than sex trafficking for AML departments. FinCEN’s Supplemental Advisory alerts financial institutions to examples of exploitative labor practices, including visa fraud, wage withholding, and recruitment fee advances. Note that in 2019, the Federal Acquisition Regulation: Combating Trafficking in Persons was amended to address prohibited recruitment fees and broadened contractor responsibility for violative recruitment fees in supply chains. 

Funnel accounts continue to be a common tactic wherein a trafficker coerces a victim to open one or more bank accounts in their own name, and then directs them to deposit, transfer, wire, and withdraw monies in amounts below a reporting threshold, for the benefit the trafficker or the enterprise. Because the accounts are often held exclusively in the victims’ names, the trafficker remains anonymous. 

Such account activity may lead to an Unusual Activity Report or Suspicious Activity Report but that would erroneously target the victim, not the perpetrator. Accounts may be closed by the financial institution, or at the direction of the trafficker, following overdraft or low balances, which can cause victims to incur bad credit status and prevent them from accessing financial services in the future. 

The Supplemental Advisory further alerts financial institutions to the prolific use of prepaid cards, virtual currencies, smartphone cash applications, and third-party payment processors to advertise their sex trafficking business and receive payment. 

Although the indicators list addended to the Supplemental Advisory is not significantly different than past iterations, it adds a set of case studies. Specific perpetrator and victim vignettes are effective in modernizing detection tools as they allow financial institutions to keep their pulse on real life examples relayed by law enforcement and survivor advocates. The Supplemental Advisory also reminds financial institutions that they are protected from liability for information sharing afforded under Section 314(b) of the USA Patriot Act. Traffickers often implicate multiple financial institutions and only through a wider lens and open communication can otherwise lawful-appearing activity be identified as suspicious.  

Finally, the Supplemental Advisory notes FinCEN’s Customer Due Diligence Rule, promulgated in 2018, which generally requires some financial institutions to identify beneficial owners of commercial customers. Under the Trafficking Victims Protection Act, “whoever knowingly benefits, financially or by receiving anything of value” may be subject to criminal and civil liability. Therefore, diligence and monitoring processes are to include potential third-party participants in an exploitive scheme.  

FinCEN’s advisory on human trafficking is timely. In the last few months, regulators have signaled increased attention on financial institution responses to human trafficking. This past summer, Deutsche Bank was fined $150M by The New York State Department of Financial Services (“NYDFS”) for compliance failures related to client Jeffrey Epstein, his sex trafficking enterprise and correspondent banks. In the Consent Order, NYDFS found the Deutsche Bank “conducted business in an unsafe and unsound manner [and] failed to maintain an effective and compliant anti-money laundering program.” This September, Westpac Bank was fined $920M USD by the Australian Transaction Reports and Analysis Centre (Australia’s financial intelligence, anti-money laundering and counter-terrorism regulator) for failures in AML reporting, record keeping and detection, including transfers indicative of child sex trafficking. This fine is the largest paid to an Australian regulator for violation of money laundering laws to date. Also in September, the United Kingdom announced that the U.K. Modern Slavery Act of 2015 will be strengthened to (i) allocate more funding to enforce its requirements and (ii) mandate that companies’ modern slavery statements cover certain topics ranging from due diligence to risk assessment. 

Increased regulatory focus on financial institution responses to human trafficking deserves attention.

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Can I Negotiate a Bad Credit Auto Loan?

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Yes, you can negotiate your deal on a bad credit car loan, though you may not have the same leverage as someone with a better credit score. Without the strength of a high credit score behind you, you may not be able to qualify for as low of an interest rate or monthly payment as you’re looking for. But a lot of things associated with an auto loan can be negotiated.

Preparing to Negotiate a Bad Credit Auto Loan

Before you go toe-to-toe with a dealer, make sure you know what kind of power you have in this arena. This means knowing your credit score and what’s on your credit reports. Without this information, you’re powerless to push back against a lender’s assessment of your credit situation.

Auto Credit Express Tip: Remember, you’re most likely going to be interacting with the special finance manager at a dealership, who talks to the lender on your behalf. The dealer isn’t responsible for the rates and terms you qualify for, and the lender can’t determine how much a dealership is willing to cut a deal.

The only way to know you deserve better terms than you’re being offered is to do your research. Find out what the average car loan looks like for people in similar situations. You don’t want to go into a dealer with unrealistic expectations.

  1. First, get your credit score and credit reports. Now is a great time to do this, because the three major credit bureaus – TransUnion, Experian, and Equifax – are offering U.S. consumers free weekly access to their credit reports. This deal only lasts until April 2021; you can request a copy of your reports by visiting www.annualcreditreport.com.
  2. Next, look online for some national averages on auto lending interest rates and see where you fall on the FICO credit scoring model. Knowing where you stand enables you to prepare for the next steps in your car loan: your budget.
  3. The final step to getting ready to negotiate on your auto loan is to plan your car buying budget. If you don’t know what you have to work with, or how to accurately calculate the out-the-door and overall costs of your auto loan, then you won’t have a leg to stand on when talking to a dealership.

What Are You Negotiating For?

Without a plan or a budget to refer to, you can’t have a goal to negotiate for. When it comes to a bad credit car loan, there’s no point in negotiating just because you can.

You should have a set goal in mind, whether it’s a target interest rate, a specific loan term, or a set monthly payment amount. Don’t give these things away to the dealer, though. Keeping your numbers close to the vest is what gives you the power to make a deal on your terms.

In order to get an auto loan deal you can live with, you have to know what you can afford. To find this out, you can do a few simple calculations that the lender does when determining if your budget can handle a car loan. This is your debt to income (DTI) ratio.

Your DTI ratio lets you know how much of your monthly finances are already being used by your existing monthly bills, including an auto loan and car insurance. If you’re using more than 45% to 50% of your monthly income, a lender may not be willing to add to that burden.

To see how much auto loan you could qualify for, and to find out if those monthly payments fit into your budget, you can check out our car loan and monthly payment calculators.

Know What You Can Negotiate

In order to negotiate on your bad credit auto loan, you have to know what you can and can’t change your lender’s mind on. Not everything on a car loan contract is negotiable.

Here’s a look at what you can have a crack at negotiating:

  • Can I Negotiate a Bad Credit Car Loan?Vehicle selling price – The first thing you should know you can negotiate on when it comes to an auto loan is the price of the car. The sticker price on a new vehicle typically lists the MSRP, or manufacturer suggested sale price, and may list a dealership price, too. You can ask for any price you want, but the dealer may not agree to honor it.
  • Your interest rate – Your APR is likely to be a bit higher than you’d like with bad credit, but you can always ask a dealership or lender if what they’re offering is the best rate you qualify for. Often it’s not, there’s no rule that says dealers have to offer you the lowest rate or best deal that you’re qualified for by a lender. With that said, you don’t have to accept a deal that stretches you too thin, either.
  • Your loan term – Shorter loan terms mean higher monthly payments, but stretching your loan too long means a higher overall cost. Being a payment shopper, only looking at the monthly payment and ignoring the overall loan cost, isn’t the place to be with poor credit.
  • Down payment amount – When you have credit challenges, you generally have to meet a down payment requirement set by your lender. However, it may not be set in stone. Depending on your other rates and terms, you may be able to negotiate the amount you need up front.
  • Your trade-in – If you’re using a trade-in to cover some of your down payment amount, you may be able to negotiate what you’re getting out of it. It also helps to know the value of your trade-in before you head to the dealership so you can have more leverage in negotiation.
  • Prepayment penalties – If you have to take on a longer term to get a more favorable monthly payment, you can save money in the long run by paying more on your loan whenever possible. Look over your contract carefully to make sure you aren’t penalized for this, or ask the lender to remove the clause if you are.
  • Optional features and equipment – Some features on the vehicle you’re choosing could be optional, and carry additional fees which can be negotiated on. Things like window tinting, fabric protection, and certain optional packages like wheel protection or cargo nets could be charges coming from the dealer. You don’t have to agree to these. This also goes for extended warranties and GAP insurance coverage.
  • Dealership documentation fees – A “doc fee” on any auto loan contract, which dealers charge for preparing your paperwork and talking to the lender on your behalf, is pretty standard, but the amount varies. There’s no reason to pay through the nose for this, and many states cap the amount you can be charged. Expect a minimum doc fee, but try to lower it as much as possible.

With all these things to haggle over, there are three main things that are non-negotiable when it comes to a car loan (which are set by the state, so there’s no getting around them):

  1. Taxes
  2. Title fees
  3. License fees

Ready to Negotiate Your Next Car Loan?

If you’ve tried negotiating on a bad credit auto loan in the past and were unsuccessful, don’t give up! Just because one dealership isn’t willing to work with you doesn’t mean that others aren’t.

Remember to keep your search for a car loan to a two-week window. If you apply for multiple loans of the same kind with different lenders within that time frame, you stop multiple hard credit inquiries from affecting your credit score.

Additionally, when you have bad credit and need an auto loan, it’s in your best interest to make sure you’re applying with a subprime lender at a special finance dealer. These lenders are able to help people in many tough credit situations, such as bad credit, no credit, and even bankruptcy.

Here at Auto Credit Express, we’ve cultivated a nationwide network of special finance dealerships, and we want to get you matched to one in your area! We’ll get right to work for you after you fill out our fast, free, and zero-obligation car loan request form.

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Visitors to local dealership website can get their credit score for free

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Honda of Victoria provides free credit score and buying power tool online for all users

VICTORIA, Texas (PRWEB) October 24, 2020

Honda of Victoria, a dealership serving Victoria and the entire surrounding area, provides a tool on their website likely to bring a smile to the face of many shoppers: the ability to obtain one’s credit score for free. The TransUnion VantageScore page on the Honda of Victoria website provides credit score, interest rate, terms and borrowing power information instantly to users.

A Social Security Number is not required to utilize the Honda of Victoria system. The dealership assures users that the system is safe and secure. Getting one’s score does not affect one’s credit, and the service is available in English as well as Spanish.

In addition to the free credit score tool, Honda of Victoria allows customers to get pre-approval for financing online. The dealership makes a point of accepting both good and bad credit, and welcomes all first-time buyers. A finance team is on hand to help every customer find the finance package that works best for their own particularly needs.

To apply for credit pre-approval, users need only fill out a form on the site. The form requires users to enter their contact info, employment info and the vehicle that they are interested in.

Those interested in checking their credit score for free are encouraged to go to the Honda of Victoria website at http://www.hondaofvictoria.com. Alternatively, individuals can reach the dealership by phone through dialing 361-575-0495. Finally, those who wear a mask and practice proper social distancing procedures are welcome to visit the dealership location itself at 116 Huvar Street, Victoria.

For the original version on PRWeb visit: https://www.prweb.com/releases/visitors_to_local_dealership_website_can_get_their_credit_score_for_free/prweb17498137.htm

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