Three Ways to Refinance a Home Loan on Bad Credit

The better your credit, the easier it is to get a loan; but there are still three ways to refinance your home loan on bad credit.

FHA Refinancing Loans

The Federal Housing Administration, or FHA, offers loan programs designed to make housing more accessible. The FHA not only works with borrowers with a low income, they also make loans more available to borrowers with bad credit. Overall, FHA loans are less strict with applicants' credit requirements; generally, FHA lenders only look at the past two years of your credit history, and will allow you to attach paperwork explaining any major problems with your credit.

If you have filed bankruptcy in the past, most lenders will regard this as a problem with your credit for the next several years. However, the FHA will forgive your bankruptcy, as long as at least two years have passed.

The FHA does not lend money directly; instead, it works with private lenders to insure a loan the private lender gives borrowers. The FHA Web site, http://www.hud.gov, can help you find a list of lenders with FHA loans in your area.

B Paper Lenders

Some lenders, called "B paper lenders," cater specifically to borrowers with bad credit. The term "B paper" refers to the type of credit category a borrower falls into - the borrowers with the best credit history receive a grade of A, while those with some credit problems receive a grade of B, C, or even D. The term "B Paper" simply means that a lender is willing to work with borrowers who may not be graded "A" in their credit history.

A B paper lender's mortgage rates and fees may be higher than with other lenders, but in turn, they are more willing to work with borrowers whose credit history is imperfect.

Working With a Mortgage Broker

A mortgage broker is a third party who sells loans on behalf of a private lender. Because a mortgage broker works with a number of different lenders, he or she will know which lenders will be most comfortable with your credit history. Many mortgage brokers also familiar with working with borrowers with bad credit, and can provide extra advice for how to best proceed.