Mortgage Refinancing Regardless of Credit Score or Poor

By Lanae Carr, eHow Contributor

Conventional mortgage refinancing is a privilege, not a right. Homeowners generally earn this right with good credit, current mortgage payments and a low debt-to-income ratio. If you have a poor credit rating, your lender may be apprehensive about offering you a new mortgage loan. If you are experiencing financial hardship, there are ways to refinance your mortgage regardless of your credit score and history.

1. • In February 2009, the federal government created the Making Home Affordable program in response to the housing crisis of 2008, during which more than 3 million Americans lost their homes to foreclosure. Predatory lending was one of the factors that led to the wave of defaults on mortgage loans. Buyers were given mortgage loans that did not match their financial background and lifestyle.

     For example, a homeowner with an interest-only mortgage may be able to afford making payments on an expensive home until a balloon payment is due in three to five years and monthly payments increase considerably. The Making Home Affordable program helps borrowers replace their existing mortgage loan with a loan bearing new terms.

   • Credit history is not a consideration for a federal mortgage assistance program. To qualify for a refinance through Making Home Affordable, you must have a Fannie Mae or Freddie Mac loan and be current on your mortgage payments. Being current on your mortgage payments means not having missed a payment in 12 months. Refinancing through Making Home Affordable is reserved for homeowners who can prove that the new payments will make their loans more affordable and stable. You must have income to support the new monthly payments and not owe more than 125 percent of the home's current value.

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• The goal of a mortgage refinance through Making Home Affordable is to reduce your interest rate and your payments to an amount that fits into your monthly budget. However, Making Home Affordable does not always offer the best interest rates. Review your good faith estimate, or GFE, to ensure the new payments are low enough. If not, there are alternatives. The Neighborhood Assistance Corp. of America, or NACA, is a nationwide advocacy organization that offers mortgage assistance to homeowners with unaffordable loans. NACA program participants have secured interest rates as low as 2 percent through its assistance programs. However, NACA warns homeowners that only 80 percent of participants that go through the program can be helped.

• Refinancing with poor credit history is not impossible, but maintaining your eligibility for the program may be a challenge if you accept new mortgage terms that still don't match your financial situation. There are options available outside of refinancing that can reduce your payments or help you avoid foreclosure, such as loan modification or forbearance. Loan modification works by restructuring your existing mortgage to create affordable payments. Modification can also help you catch up on past-due payments by adding the amount of your past-due balance onto your principal balance. Forbearance is an option if you are experiencing temporary hardship and need your payments suspended for a short period.