By Michele Lerner
Mortgage Credit Problems Columnist

Several factors influence the decisions of lenders on mortgage applications. Lenders primarily look at three things for a home refinance loan:

1. the credit score of the borrower
2. the debt-to-income ratio of the borrower
3. the equity in the property (the difference between the value of the home and the amount owed on the mortgage)

If you are weak on one of the factors, you may need to compensate with a strong showing on another factor. For instance, mortgages for people with bad credit often require considerable equity for loan approval. The more equity you have available, the more likely you are to be approved.

Sometimes bad credit mortgage lenders approve a home refinance for borrowers with a high income in relation to their debt, because borrowers in those situations are considered less risky.

One way to find out where you stand with bad credit mortgage lenders is to complete an online form to start comparing offers for bad credit mortgages.

Benefits of a bad credit refinance

If your credit score is low because of an overload of debt problems or too much credit card debt, a home refinance can improve your situation in one of two ways.

• If you have plenty of equity, you may be able to take cash out of your home when you refinance to pay off other debt. However, be very careful if you choose to do this that you do not begin to overspend again. Your mortgage payments could be higher even if you have a lower interest rate, simply because you have increased the size of your loan. Make sure you can comfortably afford your new payment.
• If you don't have enough equity for a cash-out home refinance, you can still improve your finances by refinancing without taking cash out and lowering your mortgage payment. You can then tackle your debt with the money you save.

If you qualify for a bad credit mortgage refinance, just be sure you are careful to evaluate the pros and cons of refinancing. Compare the monthly payments of your current loan and your new loan and estimate how long it will take to recoup the cost of a home refinance. Refinancing can be worth it if you can improve your credit and your balance sheet.

Other Recommended Refinance Articles

• Five ways to know if you should refinance
• 5 tips for prospective home refinancers
• 2 ways refinancing can help your finances