Our investigation into mortgage refinance approval using people with bad credit reveals that the key lies with where they apply for the mortgage refinance. For example, many people with bad credit visited conventional banks or credit unions to apply for a mortgage refinance but were declined. These same people could immediately apply with another mortgage broker, and be approved for an "A paper" mortgage.
The reason seems to be that banks and credit unions have specific underwriting guidelines and specific home loan and mortgage refinance programs. If the borrower does not happen to match the conventional bank or credit union's underwriting guidelines due to bad credit, they didn't qualify for the mortgage refinance program offered. Sometimes the conventional bank or credit union would approve the borrower with bad credit but at a much higher rate and/or adding several points to the closing costs.
This seems to present a stumbling block for many with bad credit seeking new home loans or to refinance their existing mortgage. Many people stopped trying to get approved after being rejected due to bad credit, interpreting the conventional bank or credit union's rejection to mean they did not qualify for a home loan or mortgage refinance, period. The disqualification because of bad credit also caused embarrassment and apprehension to try again.
But, try again is exactly what the borrower with bad credit should do. It is not advised to apply all over town for the mortgage refinance hoping someone will say yes. This is putting the cart before the horse and may result in wasted time and could lower the already bad credit score. (Though this is a matter of debate that we have not confirmed, most mortgage professionals we spoke with strongly believed that pulling multiple credit reports decreased the credit score).
The borrower needs to gain access to multiple loan programs and then apply for the specific mortgage program they will be approved for. We found the existence of literally thousands of mortgage refinance programs for people with bad credit and a wide variety underwriting guidelines for consumers with less then perfect, bad credit, high debt to income ratios, no equity, missed mortgage payments, recent bankruptcy, and hard to document income (self-employed or commission sales).
So for those with bad credit that want to refinance their mortgage, there are mortgage brokers and that represent dozens, if not hundreds of specialized lenders that offer mortgage refinance programs with approval guidelines based on an individual's unique situation (including bad credit). If they cannot get you approved today, they generally offer advice on what can be done in the short term to improve the bad credit enough to qualify.
