How to Refinance Your Home If You Have Bad Credit or Own a Small Business

In the last few years, many who have bought homes have gotten mortgages that weren’t really in anyone’s best interest. They might have gotten interest only loans, adjustable rate loans, stated-income loans, or other sub prime mortgages that with high-interest rates that never should have been made in the first place. Many of those with sub prime mortgages have worked to improve their credit scores and then refinanced into more conventional mortgages, but that’s not an option for everyone.

It’s much more difficult to have a refinance on a home mortgage loan approved if you have less than stellar credit or if you own a small business. Fortunately, Fannie Mae, the largest mortgage holder in the United States, is planning on launching a new program in April to help individuals that have less than perfect credit or are self employed to take advantage of the low interest rates that are currently available to home buyers and homeowners who want to refinance.

The new program, called “Refi Plus”, will waive the normal credit score requirement when someone refinances a loan. The program will also require lower documentation standards for proof of income. Finally, the program will allow for computer-generated appraisals, which often conclude that a home is worth more than market value. If a home has increased in value or appears to have increased in value, it will be much easier to refinance because the homeowner will have or will appear to have more equity in their home.

This program will stand to affect a substantial number of homeowners, more than the number of people that have already refinanced their homes since the recent decline in interest rates. The program will be a very good deal for homeowners that also own a small business or have bad credit, but it may also lead to higher default rates and additional foreclosures. Whenever requirements for any type of loans are loosened or relaxed, the number of defaults will naturally increased.

Fannie Mae is likely betting on the notion that many who currently cannot pay their monthly mortgage payments will be able to do so after getting their home loans refinanced and thus lowering their monthly payment. The key will whether or not the number of additional foreclosures from defaulted loans will be outweighed by the number of homeowners can now pay their loans because they were able to refinance but were previously unable to because their payments were too high of a percentage of their monthly income.

If you’re in an interest only or adjustable rate mortgage loan and don’t have a great interest rate on your mortgage (i.e, over 6%), you might want to consider refinancing. If you can get by doing a traditional refinance, you should certainly do that first, but if you can’t refinance that way, you might want to consider Fannie Mae’s new Refi Plus program when it comes out in April.