Q: I just bought a home in March with bad credit. I got an 80/20 loan, of which $69,000 is financed at 8 percent and $17,000 is financed at 10 percent. Both of these loans are 5-year adjustable rate mortgages (ARMs).
I have not resolved all my credit issues, but I desperately need to refinance these loans and consolidate my payments. My credit isn’t that bad. I’ve only got a couple of collections on my credit report. I’m a first-time homeowner and I don’t know what to do. Any advice?
A: Considering that you haven’t resolved all your credit issues and you needed 100 percent financing, you were lucky to be able to buy a house at all.
Although the interest rates on your two loans seem high — and they are high compared with the rates borrowers with top credit scores are getting — they may be legitimate for someone who has collections or late payments on his credit report and is financing 100 percent of the purchase price.
If you need to refinance your loans, schedule appointments with major lenders in your area to see what they can do for you. Pull a copy of your credit report and score (www.myfico.com, $12.95) to see where your score is and how you can improve it. Take your credit score with you to the appointments so lenders won’t have to pull copies. (When lenders pull copies of your credit report, this can lower your credit score even further unless you refinance within 30 days.)
If local lenders can’t help you, spend the next six months or a year working to clear your credit history of negative information. Six months or a year of on-time payments will boost your credit score. Then you should be able to get better rates.