Key takeaways
- Refinancing replaces your existing mortgage with a new loan at better terms — lower rate, longer term, or fixed instead of adjustable.
- Best for homeowners who are still current with adequate income, good credit, and equity.
- Traditional refinances generally want an 80% LTV or lower and a solid 12-month payment history.
- Usually not allowed during active forbearance — resume normal payments first.
What is refinancing?
You replace your existing mortgage with a new loan at better terms — a lower rate, a longer term, or a fixed rate instead of an adjustable one — to make payments affordable. It works best before you fall behind, while you still qualify.
Houston note: Texas is a non-judicial foreclosure state, so timelines move fast. Talk to your servicer or a HUD counselor as early as possible — well before any first-Tuesday auction at the Harris County courthouse.
Eligibility requirements
- Sufficient home equity — traditional refinances generally want an 80% LTV or lower.
- Good credit and adequate income to qualify for the new loan.
- A solid recent payment history (typically 12 months current).
- Note: refinancing is generally not allowed during active forbearance — you must resume normal payments first.
The step-by-step application process
- Check eligibility — pull your credit, estimate equity/LTV, and review payment history.
- Shop lenders for the best rate and program (including streamlined or government options if applicable).
- Apply with income documentation (pay stubs, two years of tax returns) and asset records.
- Appraisal and underwriting.
- Close — the new loan pays off the old one and you begin the new, more affordable payment.
Impact on your credit score
Refinancing triggers a hard inquiry and a new account, causing a small, temporary dip. If it keeps you current, it protects your score long-term by avoiding late payments and foreclosure. It works best before delinquency, since being behind usually disqualifies you.
Pros & cons vs. foreclosure
| Refinancing | Foreclosure | |
|---|---|---|
| Keep your home | ✓ Yes | ✗ No |
| Credit damage | Minor, temporary dip | Severe |
| Eligibility | Needs equity, income, good credit | — |
| Long-term cost | Lower payment, possible closing costs | Loss of home |
| Timing | Must act early / while current | — |
Sources: Avoiding Foreclosure (consumer guide), LawHelp, Bankrate.