The key to refinancing with bad credit - or any time you're looking for a mortgage, in fact - is to shop around. Different lenders and brokers cater to different parts of the market, and some of them specialize in loans to people with weak credit. But you've got to shop around. Obtain your credit score (more on that below) and contact 6-10 lenders and see what sort of terms they offer. You can also contact several mortgage brokers, who can track down the lowest rate and terms for you - but you'll need to pay a small slice to them as well.
So how much will you have to pay? According to the Fair Isaac Corporation, which developed the FICO credit rating system used by lenders, you can still get a fairly good rate with a score as low as 660 - about 5.5 percent on a 30-year fixed-rate mortgage as of Aug. 14, 2009. Higher scores mean lower rates - saving about two-tenths of a percentage point for each step upward to scores of 680, 700 and 760 or above.
But below 660, rates increase rapidly, by about half a percent for every 20 point drop - to about 6 percent for a score of 640-659, and 6.5 percent for scores of 620-639. Rates for scores below 620 are not listed, but will be even higher, if you are able to get financing, which may require a co-signer on the loan in the current economic climate.
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