1) Your credit has fallen since you got your mortgage.

If your credit score is in the mid-600s, go for an FHA loan, says mortgage banker Gus Altuzarra of Vertical Capital Markets Group. “FHA’s qualification standards are a little more liberal than Fannie Mae or Freddie Mac’s,” he says.

2) You’re underwater — owing more on your mortgage than your home is worth.

If you always pay your mortgage on time and Fannie Mae or Freddie Mac guaranteed your loan, try the Home Affordable Refinance Program (HARP), says Keith Gumbinger of mortgage research firm HSH. 

If you don’t have a Fannie/Freddie loan, try these alternatives:

  • FHA’s Short Refinance program can help, if your lender is willing to forgo collecting a portion of your existing mortgage.
  • Bring enough cash to the closing table to pay off some of your old mortgage. For example, if your home is worth $100,000 and you owe $115,000, bring $15,000 plus a new $3,500 down payment to closing and you’ll no longer owe more than your home is worth. That way, you’ll qualify more easily for a refinance.
  • Convince your lender to take less than the full amount you owe on your current mortgage when you refinance. That’s called a “principal reduction.” If your banker agrees to a principal reduction, make sure you won’t ever have to repay the money.

3) You don’t have (or can’t prove you have) enough income to make the higher monthly payment for a fixed rate loan. 

Typically, lenders want borrowers to spend no more than 43% of their income on household bills, including the mortgage. If it takes 37% to 41% of your income to pay the bills, you can still get a loan from FHA.

If you have a Fannie Mae or Freddie Mac-guaranteed loan, and your household income has fallen since you got your mortgage, (say your spouse lost his job but you still have your job) try the HARP program.

“It doesn’t look at how much income you have, only that there’s income in the household,” Gumbinger says. “As long as you can prove there’s income coming into the household and you’re making payments on time, you’re eligible for HARP.”

4) You don’t have enough cash to pay closing costs.

Closing costs, such as recording fees, appraisal fees, and title insurance, have to be paid. You can borrow your closing costs with a HARP mortgage, but that can raise your loan amount. Can you cut household expenses, make more money, or save enough money to pay your closing costs? 

If you try to refinance and fail, know what the worst-case scenario might be. If your loan’s interest rate rises by, say, 3% per year, you’ll need to figure whether your budget can handle that increase.

If it can’t, call your lender several months before your payment is set to rise and explain that you’re not going to be able to make the higher payment. At that point, your lender might be more willing to talk refinance.