• Qualifications for a refinance are similar to those of a first mortgage.house image by Karol Grzegorek from Fotolia.com
  
  When attempting to refinance a mortgage, several qualifications must be met prior to the new loan being issued. Like a home purchase, a refinance is a process that involves multiple considerations on the lender's part. Ideally, the borrower has maintained a healthy credit history and financial portfolio and the property has appreciated with local trends. The lender generally places equal bearing between borrower and property qualifications to determine eligibility for mortgage refinancing.
  
  

Credit Qualification

• The lender will pull a new credit report. This helps determine the borrower's history of paying back not only the current mortgage but also other monthly debts such as auto loans, student loans and credit cards. If a credit rating is excellent, this may bode well for the borrower and allow a streamline refinance with minimal effort on the borrower's part in providing income or asset verification documents. An average or worse credit rating poses a greater risk for the lender and may impact the interest rate and require additional borrower conditions to be satisfied.
  
  

Income Qualification

• When the mortgage loan was first given, a debt-to-income ratio qualification was used to determine how much of a burden a mortgage would be in addition to other monthly debts. The same ratio will be calculated for the mortgage refinance. The good news is that lenders use the gross, or pre-tax, monthly income for this figure. Lenders like to see that the future monthly mortgage payment plus all other monthly debts (including auto loans, student loans, and minimum monthly payments on credit cards) do not exceed 36 percent of gross monthly income. A higher ratio poses a greater risk and may impact underwriting approval.
  
  

Asset Qualification

• Generally, at least two months of the future monthly mortgage payment plus other monthly debts must be held in reserve assets. These include liquid savings or stock, bond, mutual fund or retirement accounts. Failure to meet the asset qualification may pose a greater underwriting risk, since the lender will question a borrower's ability to consistently make timely mortgage payments.
  
  

Loan Amount

• Lenders will ensure the amount refinanced does not exceed too much of a property's value, known as a "loan-to-value" ratio, or LTV. Generally, lenders will allow a refinance if the new mortgage loan is less than 90 percent of the property's value, however they may allow 95 percent LTV refinances with risk adjustments to the interest rate and if there are other strengths in the application.
  
  

Property Value

• The amount of equity in a property is a key qualification for mortgage refinancing. Property appraisals may need to be conducted to re-evaluate areas with many or few recent sales or areas with varying price points. According to The Federal Reserve Board, the home may not be worth as much as owed on the mortgage. "Even if home prices stay the same ... a loan that includes negative amortization (when your monthly payment is less than the interest you owe, the unpaid interest is added to the amount you owe), you may owe more on your mortgage than you originally borrowed. If this is the case, it could be difficult to refinance."