Just because you were able to get a mortgage in the past doesn't mean you'll be able to refinance your home. You still have to go through the same steps you did with your original mortgage. And if some of things have changed for the worst - you may not be able to qualify.

Credit score

For the most part, the same criteria apply when you're either buying or refinancing a home. For the best refinance rates, lenders like to see a credit score of 740 or higher, though you can still qualify with a score well down into the 600s. People with lower scores may find it advantageous to refinance through an FHA loan.

Income

Your income is important, but what lenders really go by is your debt-to-income ratio. That's the percentage of your gross monthly income that goes toward debt payments, including your refinanced mortgage. With good credit, you can get by with a debt-to-income ratio as high as 43 or even 50 percent, though many lenders will limit it to 36 percent if your credit is only so-so.

For purposes of home refinancing, lenders will look at your tax returns and adjusted gross income. So if you've started taking larger deductions in recent years, such as for a business, that could depress your "official" income for purposes of qualifying for a refinance.

You also need to be able to document your income and show at least two years of steady employment history in the same field of work. If your earnings have fallen or if you've changed careers during that time, you could have difficulty refinancing a mortgage.

Multiple sources of income are ok, but you need to be able to show two years of steady earnings from each.

Appraisal

Just as when you bought the property, your home will have to undergo an appraisal in most cases to determine if its value will support the loan and the level of home equity that you have.

Home equity

Lenders like to see that you have at least 20 percent equity in your home before they'll approve a mortgage refinance. That means that the total still owed on your mortgage is no more than 80 percent of the home's current value. Some lenders will go lower, but you'll need to pay for mortgage insurance as a result, the same as if you bought a home with less than 20 percent down.

If your credit has gotten worse, your income has fallen or your debt load increased, you may have trouble qualifying.

In addition, if your home has lost value - such as if housing prices have fallen - it may not be enough to support the mortgage. You could even be in a situation where you owe more on your mortgage than the home is currently worth - a situation known as being "underwater" on the mortgage.

Refinance options for low equity/underwater homeowners

There are still options available if you have less than 20 percent equity, however. FHA loans only require 3.5 percent down or equity, regardless of whether you're buying a home or refinancing. If you presently have an FHA or VA loan, you can qualify for what is called a streamline refinance simply by being current on your mortgage payments over the past year.

A HARP refinance is available for homeowners with low- or negative equity (underwater) mortgages that are backed by either Fannie Mae or Freddie Mac. Officially called the Home Available Refinance Program, this is a federal program that allows you to refinance without regard to the home's current value and no appraisal is required. But don't wait too long - the program expires at the end of 2016.

Published on November 10, 2015