How to Refinance With a Late Mortgage History
- 1). Pull a recent copy of your credit report. You'll need to know exactly the extent of your mortgage delinquency. See Resources to request a free copy of your credit report. You may also want to pay for your FICO score--a three digit number from 300 to 850. Excellent scores are above 720; poor scores are below 600.
- 2). Determine the reason for the mortgage delinquency. Underwriters and lenders will see mortgage delinquency as serious red flags. You must have solid reasoning for the late payments. This can be: unemployment, disability, divorce or death in the family.
- 3). Draft a letter of explanation. This letter is to explain the delinquency, in detail, to the prospective underwriters reviewing your loan application. The letter should fully explain the reasons behind the late payments and must be accompanied with any and all supporting documentation (like disability notices).
- 4). Begin researching lenders. Credit unions and banks will not refinance a mortgage that has had any late payments. Therefore, you must narrow your search to finance companies--like CitiFinancial and Wells Fargo Financial. These companies cater to borrowers who've had credit problems.
- 5). Make sure your other demographic factors on your application are solid. These include: good assets, strong income (a low debt-to-income ratio), good equity and limited debt. To calculate your debt-to-income ratio (DIR), divide your monthly expenses by your monthly gross income. A good DIR is under 40 percent. Strong demographics will improve your chances at getting financed.
- 6). Consider "hard" lending if you're denied at finance companies. These lenders are normally private investors. The rates and fees on these loans are often much higher than those of traditional lending institutions. You must be very careful when seeking hard money loans--they may not be more beneficial than your current loan.
