Refinancing

• Mortgage financing involves paying back money to a bank or mortgage company. These financial institutions approve homebuyers for mortgages and borrowers agree to specific home loan terms. But often, borrowers want to modify or improve their existing mortgage terms. Refinancing a mortgage loan helps borrowers achieve a better loan product. Refinancing establishes an entirely new mortgage. By means of a refinance, borrowers can perhaps qualify for a lower mortgage rate and pay a cheaper home loan payment.
  
  

Credit Criteria

• One criteria for mortgage refinancing involves having an acceptable credit score. In general, a credit score 680 or higher makes a borrower eligible for a mortgage refinancing. The drawback is that a 680 credit score does not warrant the best mortgage rate or the lowest monthly payment. Borrowers who refinance with the objective of lowering their monthly obligation should postpone refinancing until they have a score of 740 or higher. Paying off consumer debt and paying all bills on time helps advance a credit score. Order personal credit scores from the My Fico website.
  
  

Home Equity

• Completing the refinancing calls for a home appraisal to estimate the home's value. Home equity plays a major role in refinancing. Lenders only write new home loans if the property has a minimum of 20 percent equity (3 percent equity for an FHA refinancing). Borrowers with less equity must wait until the home appreciates in value, or talk with their lender to see if they are eligible for the Making Home Affordable Refinance Program, which refinances borrowers with little or no home equity.
  
  

Affordability

• Lowering your mortgage payment after a recent layoff or job loss can help you keep your property. But without consistent income, refinancing a mortgage can prove challenging. Because a refinancing requires giving your mortgage lender a new home loan application and getting re-approved for financing, a drop in income can affect affordability. Mortgage payments are typically no more than 28 percent of gross monthly income, says the Home Loan Learning Center. A mortgage lender may view your present income in relation to the mortgage payment and conclude that you do not qualify for a refinancing.