Even with all of the recent changes in lending, bad credit mortgage refinance is still a viable option. (Unnamed Copywriting)

Even with all of the recent changes in lending, bad credit mortgage refinance is still a viable option.

A common misconception is that because of the changes that have recently come about in the world of mortgage, it is no longer possible to obtain a bad credit mortgage refinance loan. The reasoning is that because of the lending crisis and the subsequent loss of sub-prime loans, there aren’t any more banks out there that will lend to people with bad credit.

It is true that the available options for bad credit home mortgage refinance are not nearly what they once were, but the difference is that now the options that are left are much better than they ever were before.

Sub-prime loans certainly made it possible to get almost anyone a mortgage refinance with bad credit. But, just because they are gone does not mean that there are not options any longer. The void that was left by the loss of these loans was filled by government insured home loans. However, unlike sub-prime loans, these government loans are not based on credit score at all.

Sub-prime loans worked on a system on complex matrixes. The final interest rate was determined by a few different factors, including the percentage of the home’s value that was being borrowed, the income of the borrower, and of course, the credit score. Home loans’ interest rates were worse depending on how bad all three of the qualifying factors were. With government loans, however, the interest rate is set for anyone who is approved for the program.

There are no interest rate matrixes on an FHA home mortgage. Clients who are trying to get approved for bad credit loans are put in front of an underwriter. The underwriter looks at the file as a whole and tries to decide if it makes sense. Regardless of credit or income, if the borrower is approved because the underwriter decides that the new loan scenario makes sense, the interest rate will be the same as anyone else who has been approved.

The result of this change is that unlike before with sub-prime loans, a bad credit borrower actually has to be able to explain why it makes sense to approve them for a mortgage. If someone has bad credit, they can still be approved, but it is imperative that a picture can be painted that shows that the borrower has identified the problem that was causing the bad credit, and has put a plan into motion that will ensure that this problem is eliminated.

Unlike the bad credit lending of the past, these new government loans are actually designed to help the average homeowner. The new loans typically have better interest rates, and are being held by reputable banks. Getting approved for an FHA bad credit loan is actually a good thing, as opposed to the adjustable rates of the past.

Even though most bad credit refinancing options have dried up, and although it is a bit harder now to get approved with bad credit than it once was, the loans that are still available for borrowers with bad credit are much better loans to be in.