Cleaning Up Credit Report

• Refinancing a house will involve having a good credit score to re-qualify for a mortgage loan. Mortgage lenders do not use old information as the basis for a new mortgage loan. A decrease in your personal credit score from the time of acquiring the first home mortgage can hinder refinancing. Lenders prefer scores of 680 or higher. But if you are refinancing to lower your existing mortgage rate and bring down the home loan payment, you'll need a score of at least 740, says Bankrate.com.
  
  

Gathering Financial Statements

• The income reported to mortgage lenders with your original home loan application no longer applies when refinancing. Situations change and people can lose jobs or switch employment. Mortgage lenders must re-evaluate your circumstances to determine if you can afford the payment on the new home loan. Even if you're current on your old mortgage and have never missed a payment, lenders will take your present income and weigh this against the home loan payment. As a standard industry rule, mortgage payments should not exceed 28 percent of your gross monthly income.
  
  

Finding a Mortgage Lender

• Some homeowners refinance with their present lender since they've already established a relationship, whereas others choose k a new bank or mortgage company. You don't have to refinance with your present lender. Still, you'll want to request a free loan quote from your current lender, and at least one or two other quotes from another bank. Compare offers to secure the mortgage loan with the best rate and lowest fees.
  
  

Home Appraisal

• The amount of equity in a home determines the ability to refinance. And after submitting your refinance application, your lender will send a home appraiser to your property. As a rule, conventional loans require at least 20 percent equity. But if you are refinancing to an FHA mortgage loan, you can get financing with only 5 percent equity, says Bankrate.com.
  
  

Closing Costs

• The downside to refinancing a house is paying closing costs on the day of signing the new home loan documents. Closing costs are fees paid to a broker or mortgage lender. These fees cover the application, credit check, loan origination, title search and processing fee. Typical closing costs on a home refinance are between 3 and 6 percent of the loan amount, says LendingTree.com. Factor in the closing costs when you calculate how much you will save by refinancing your home.