This February (2009) President Obama announced a housing and homeowner stimulus plan that will help over 5 million Americans avoid going into default on their mortgage or losing their homes to a foreclosure. This type of bad credit mortgage refinance loan will be available to eligible homeowners to help combat the economic situation that has left many with mortgage debts that are greater than the value of their homes.

By capping monthly payments to no higher than 38% of the owners monthly income as well as offering lenders incentives that could bring this down to 31%, property values and interest rates as well as homeowners spending power will hopefully equalize over the course of the 5 years, which is how long this loan will last. No refinancing will result in an interest rate lower than 2% though.

This is a bold move which hopes to bring us out of a long winded recession that has been creeping up on us through out the Bush administration. There are some cities such as Boston and Seattle where the price of a house is too high for many average working people to afford. I personally know of many who have left there home towns for precisely this reason. These people did not want to move away but the amount and quality of housing for the same price in other states far outweighed their desire to sweat it out in their home towns.

To be eligible for a bad credit mortgage refinance under this stimulus plan the homeowner must:

• Have at least 20% equity in their home
• Be in default or at risk of becoming default
• Be the occupant of the house
• Prove that they have enough income to pay off the loan

Those who are not eligible:

• Investors who bought house as an investment
• Owners of a house that has dropped in value more that 5%
• Those who have a Jumbo mortgage
• Those who lied about their income on the application

One other requirement is that if your total debt is over 55% or your income you will be eligible but you will have to go to debt counseling.

Once qualified, any borrower who is prompt with their payments will also receive a $1000 bonus every year for the 5 year life of this loan.

No matter how you look at it, this is a great deal for anyone with a bad credit mortgage. Obama’s plan may or may not have a nation wide effect of  improving our economy however, in comparison to any other type of bad credit mortgage refinance loan, this one is a winner.

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For people with bad credit, a new mortgage is definitely possible though it can be a little more difficult to get. Home mortgage rates will be higher and the terms tend to be more strict. For people with bad credit that already have a home, a second mortgage is probably the last thing they will consider. However, a bad credit mortgage refinance could be a very smart move and if done properly, a home owner could actually improve their credit standing.

The Cash In Hand Option

Depending on the market conditions, if a bad credit mortgage refinance is done at the right time, that is, if the going interest rate is lower than when they got the subprime mortgage loan, they could end up closing the deal with cash in hand. Bad credit is usually caused by late payments, missed payments, excessive inquiries into their credit report, or just plain over extended finances. By refinancing into a lower interest rate and coming out with cash in hand they could use the extra money to clean up their past debts and as a result improve their credit score.

The Decreased Monthly Payments Option

Bad credit mortgages are usually associated with higher interest rates. Even if a home owners credit is still bad, refinancing could result in a 1 or 2 point lower interest rate which would decrease the monthly payment. Even a slight savings like this could be enough to get ahead on some of the debts that are keeping their credit score down.

Switching to a Fixed Rate Mortgage

Many bad credit mortgages have what is called an adjustable rate, which means they fluctuate along with the economy. If the mortgage refinance is done when interest rates are low the home owner could go for a fixed rate and get locked in to a better deal for the life of the loan. A fixed rate mortgage will not fluctuate, it is fixed. It does take some skill to do this right so it would be a good idea to follow the flow of the economy for a while to try to get a grip on any apparent patterns of highs and lows before taking this route.

If you got your house with a bad credit mortgage loan be aware that you do not have to live with the higher interest forever. Even if your credit still has much to be desired a bad credit mortgage refinance is always an option.

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If you are looking for a subprime mortgage and have the added disadvantage of having recently gone through a bankruptcy, lenders will know you are vulnerable and many will use this to their own advantage, duping you into the highest rate they possibly can.

In reality mortgage loan requirements after a bankruptcy are basically the same as any other mortgage loan, except for perhaps the down payment. For the first two years after a bankruptcy it will be exceptionally difficult to find a mortgage loan that does not require a 50% down payment. After two years, if you have made efforts to improve your credit score, finding a mortgage loan should not be as difficult and the down payment requirement should be around 20%.

When searching for subprime mortgage lenders keep in mind that in most states mortgage brokers don’t have to be licensed and as such in many cases these brokers may have no idea what they are doing. Many will most likely not have your best interest high on their priority list.

Of course not all bad credit mortgage lenders are evil. There are those who genuinely want to help people out, build a reputation for themselves and in turn win referrals. If you are searching for a loan, research on your part is extremely important so you will be able to recognize a hack from an expert, a rip-off artist from a professional. Using referrals from friends, colleagues and neighbors is a good start.

While shopping around you don’t want to accumulate inquiries on your credit report. If you don’t give up your social security number they can not do a credit check. Most mortgage brokers will want a price quote first after which they will then begin the application process. If a broker does this the other way around and requires you to fill out an application that includes your social security number, then this is no longer shopping around, you are being locked in with a broker and will then be limited to the offers they alone present to you.

You are not alone, millions of people file for bankruptcy every year. After a bankruptcy, the best thing you can do is wait. Use this waiting time to petition and make corrections to your credit report. If after two years you have had some success cleaning up your credit report then go ahead and begin the search for the best subprime mortgage you can find. Even if your credit is still bad there are plenty of bad credit mortgages available.

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