• When you refinance your mortgage, your new mortgage pays off the old. You may want to refinance to obtain a better interest rate, a lower monthly payment or to get cash from the equity in your home. But before refinancing, it's imperative that you understand the process.
  
  

Credit History

• Your credit score determines if you can refinance your mortgage. Because a refinance repeats the original loan process, you must complete a home loan application with either your current lender or a new financial institution. The mortgage company must review your income and credit history and approve the request. A drop in your credit rating or income since acquiring the original home loan can disqualify you. Check your credit beforehand and make necessary improvements such as paying off credit cards and paying bills on time.
  
  

Home Appraisal

• Lenders vary in their guidelines. In most cases, you must have equity in your property to qualify for a mortgage refinance. Twenty percent equity is a common requirement. However, there are options if you have less or no equity in your property. A Federal Housing Administration refinance loan only requires 5 percent equity, whereas eligible borrowers can refinance a Department of Veterans Affairs home loan with zero equity. If you owe more than your home is worth you can speak with a lender to see if you qualify for the Home Affordable Refinance Program.
  
  

Cash for Closing

• Refinancing a mortgage loan isn't cheap. You may have to postpone if you don't have enough cash to pay your settlement or closing fees. Closing costs are paid upon signing the new home loan documents. The actual cost accounts for approximately 6 percent of the mortgage loan. Options are available to assist. You often can wrap the cost into the new mortgage loan and avoid this out-of-pocket expense. However, you may still need cash for other services such as the application fee and appraisal.
  
  

Shop Around

• Refinancing with your present mortgage company isn't a bad idea, especially if you have maintained a good payment history with the lender. Your lender may offer a lower rate on the mortgage and waive some of the mortgage fees. Still, it doesn't hurt to explore other options and talk with at least two additional mortgage companies. Another mortgage company may charger lower fees and offer a better interest rate on the mortgage, which can save you thousands of dollars over the life of the loan.