A Step-by-Step Guide to Refinancing Your Mortgage Even with Bad Credit

Owning a home is a dream for many Australians, and even if you’re facing financial challenges with poor credit, this guide is here to empower you. It will transform the refinancing process into a straightforward, step-by-step journey that you can confidently navigate. Discover an 8-step path to secure better interest rates, reduce monthly payments, or achieve other objectives you may have in refinancing despite your poor credit score.

Step 1: Understand the Challenges and Prepare Accordingly

Bad credit scores lead to higher interest rates and stricter loan criteria. Lenders may require a larger down payment, shorter loan terms, or a guarantor (someone who guarantees repayment if you default).

Be upfront about your credit situation. Obtain a free credit report from Equifax, Experian, or illion to identify areas for improvement. 

Start building a solid application. Make sure to gather documents that reveal your capability to repay the loan, such as payslips that are not older than three months, tax returns for the last two years, bank statements covering three months, and asset ownership proof for your car, title deeds of real estate among others; declaring your financial stability.

Step 2: Boost Your Creditworthiness (if possible)

Keep paying off all debts without delay. Put more effort into repaying unpaid credit card balances and refrain from borrowing more money. Remember, enhancing your credit score by a few points can significantly influence your refinancing choices, so every effort counts.

Consider a credit repair strategy. If you have errors in your credit report, dispute them with the credit reporting bodies. This process takes some time, so begin early.

Explore secured credit cards. Using a secure card and appropriately paying the total amount owed can demonstrate positive credit behaviour to lenders.

As ideal as it is, improving your credit score could be difficult to achieve quickly. But don’t let that stop you from applying for refinancing.

Step 3: Explore Refinancing Options for Bad Credit Borrowers

Some lenders offer bad credit refinancing—research top lenders known for specialising in this area. To make your task easier, consider TigerFinance (www.tigerfinance.com.au), a reputable mortgage broker with a proven track record of helping borrowers with bad credit. TigerFinance maintains a network of lender partners who specialise in bad credit refinancing.

Step 4: The Power of a Guarantor (Optional, but Beneficial)

If you have a guarantor with a good credit rating, your approval chance significantly increases, and your loan terms might be improved as well. Select a cosignatory who meets the required criteria and is well off financially. Talk to them before deciding on the possibilities if you fail to make loan repayments. 

Ensure that you and the guarantor comprehend this important document’s legal bearings. Get an attorney to help guide you through all these stages.

Step 5: Partner with a Reputable Mortgage Broker

A bad credit mortgage broker like TigerFinance can be your champion, guiding you through the complex world of refinancing and ensuring you get the best possible terms.

The fundamental roles mortgage brokers play are that they help in refinancing, including bad credit refinance, connecting one with appropriate lenders, and negotiating for the best terms.

Look for a broker with a proven track record of helping borrowers in your situation. Read online reviews and ask for recommendations from friends or family who have refinanced their mortgages.

Step 6: Prepare a Compelling Refinancing Application

Work closely with your broker to gather all the required documentation for the application. This typically includes:

• Completed loan application form: Ensure all information is accurate and complete.
• Proof of identity: Driver’s license or passport
• Proof of income: Payslips for the last three months, Group Certificate (if applicable), and tax returns for the previous two years
• Bank statements for the last 3-6 months showing regular income deposits
• Evidence of assets:** Ownership documents for vehicles, investment properties, or shares
• Debt statements: Include credit card statements, personal loans, and any other outstanding debts. Be transparent about your financial obligations.
• Explanation for bad credit (optional): If there are specific reasons for your bad credit (e.g., medical bills, job loss), a brief explanation can help the lender understand your situation. However, only provide truthful information.

Your broker can clarify individual lender guidelines and positively portray your financial status.

Once all documents are gathered, carefully review the application for errors or omissions. Ensure all information aligns with the supporting documents you’ve provided.

Step 7: Navigate the Approval Process

The lender will assess your application and financial situation, which may involve:

• Credit check: The lender will obtain your credit report from a credit reporting body (Equifax, Experian, or illion) to verify your credit score and history.
• Valuation of your property: The lender may arrange a valuation to determine the loan-to-value ratio (LVR). This ratio compares the loan amount to the property’s value. A higher LVR typically results in a lower interest rate.
• Verification of income and employment: The lender may contact your employer to verify your income and employment status. They may also request additional payslips or tax documents.

You should be ready to respond to queries and offer further details if needed. Your broker may assist you by facilitating this transaction on behalf of the lender and advising you in the course. It might take as long as a few weeks to allow this. Your broker will, therefore, keep you informed as it progresses and address any worries you may have.

Step 8: Approval and Beyond!

Once approved, celebrate your success! Your sacrifice and perseverance, along with your active participation in the process, allowed you to secure refinancing with bad credit successfully. Your role was crucial in this achievement.

Before signing the loan deal, make sure you critically evaluate it. The document details all conditions and terms for the credit facility, including, among other things, the rate of interest, loan amount, repayment schedule, and charges. Familiarise yourself with all parts of the contract first to avoid foul play. In case any of the statements needs to be clarified, ask your stockbroker for word definitions. Seek legal guidance if necessary.

Once the loan agreement is signed, the refinancing process will be completed. The funds will go towards settling your current mortgage while you commence repayments on the new loan. Proper financial management is essential to remain current with new mortgage payments. Sound financial practices entail repaying loans on time, thus steering clear of any financial distress or crisis. Besides, it helps improve credit ratings progressively in the long run, setting the stage for even more favourable borrowing experiences in the future.

Why Partner with an Experienced Mortgage Broker Like TigerFinance?

While you can navigate the refinancing process yourself, partnering with an experienced mortgage broker like TigerFinance offers significant advantages:

• Expertise in Bad Credit Refinancing: TigerFinance brokers specialise in helping borrowers with bad credit secure refinancing options. They understand the unique challenges you face and have the necessary knowledge and experience to navigate the process effectively.
• Access to a Wide Range of Lenders: TigerFinance has established relationships with a diverse panel of lenders, including those specialising in bad credit refinancing. TigerFinance gives you access to a broader range of loan options and potentially more competitive interest rates.
• Streamlined Application Process:  They can guide you through every step of the application process, ensuring all documentation is accurate and complete, increasing your chances of approval.
• Negotiation Power:  TigerFinance brokers can negotiate on your behalf with lenders to secure the most favourable terms possible, potentially lowering your interest rate or obtaining more favourable loan conditions.
• Ongoing Support:  They’ll provide ongoing support throughout the entire refinancing process, answering your questions and addressing any concerns you may have.
• By partnering with TigerFinance, you can increase your chances of successfully refinancing your mortgage and achieving your financial goals, even with bad credit. Don’t hesitate to reach out to TigerFinance today for a free consultation and see how they can help you unlock the potential of refinancing.