Credit History

• A positive credit history indicated by a high FICO credit score and few credit issues helps you qualify for a mortgage refinancing. Mortgage lenders check credit reports to evaluate an applicant's payment history and debt balances. Lenders also review reports to check for derogatory information such as collection accounts and judgments. Improving your credit score and achieving a score 680 or higher helps you qualify for a refinanced mortgage loan. Pay bills on time and pay down your debt. Get your credit report from Annual Credit Report (see Resources).
  
  

Home Equity

• The amount of equity in a home also determines if you can refinance your home. Mortgage lenders require some amount of equity in a home. For this reason, it's difficult to refinance a home loan if you're underwater (owe more than the home is worth). Conventional mortgage loans require 20 percent equity. But if applying for a government-insured FHA home loan, you can refinance with only 5 percent equity. Ask a broker or lender about the Making Home Affordable refinance program. Eligible borrowers can refinance up to 125 percent of their home's value.
  
  

Proof of Income

• Refinancing a mortgage loan after a job loss or after taking a lower-paying job may seem logical because refinancing can lower your interest rate and home loan payment. But a drop in income can impact refinancing. Mortgage lenders take the mortgage payment and divide this figure by your gross monthly income. If your mortgage payment is greater than 28 percent of your gross monthly income, lenders may reject your refinancing application due to affordability issues. Consecutive employment for two years with earnings that remain the same or increase helps you get approved for a new home loan.
  
  

Closing Costs

• Closing costs on a mortgage refinance are about 6 percent of the loan balance. Consider how you'll pay these funds before refinancing the mortgage loan. Closing costs include the loan origination fee, title search, credit check and home appraisal. Lenders expect payment on the closing day. Use your personal funds to pay this expense, or talk to your lender about acquiring a higher mortgage loan to include the costs in the loan.