How to Refinance a Home With Debt Consolidation

It is possible to refinance your home mortgage and receive enough cash in the transaction to pay off some bills. However, the Bankrate website reported in October 2010 that some lenders were starting to take a dim view of so-called "cash-out" refinancings. Taking cash out of the equity of your home to consolidate bills increases your overall debt and places some of the burden on your home. If property values decline, you could find yourself owing more on the home than it is worth. Despite that, Bankrate reported in 2010 that some lenders were still offering to refinance home mortgages for up to 100 percent -- or even more -- of a home's appraised value.

Instructions

1

Order your credit report and score. Obtain the credit report from AnnualCreditReport.com, the only website endorsed by the Federal Trade Commission to offer free credit reports under the terms of the Fair Credit Reporting Act. Visit the website to view and print your report (see Resource section). Then follow instructions included on the report to order your credit score separately, for a fee.

2

Review your credit score. You'll need a score of at least 720 to qualify for the best interest rates -- and a minimum of about 620 to be approved at all, according to Bankrate. Credit standards were tightened as of around 2010 because of the major recession and housing crisis that caused massive numbers of foreclosures across the country.

3

Determine the fair market value of your home. Ask a licensed real estate agent to offer a general appraisal of your home by comparing it to other homes that have recently sold in your area. Or hire a licensed appraiser. Subtract the fair market value from the balance on your mortgage to determine the amount of available equity. Example: Your two-bedroom condo is appraised at $100,000. You owe $60,000 on the mortgage -- leaving the potential for a $40,000 cash-out if you find a lender willing to refinance at 100 percent of the value. To qualify for such terms you may need a credit score even higher than 720 -- say around 760 -- and have little to no debt.

4

Schedule a visit with a nonprofit credit counselor approved by the U.S. Department of Housing and Urban Development. The counselor can offer free advice on your refinancing. You aren't required to ask for such advice, but the counselor could be a valuable resource as he discusses your credit score, your debt consolidation needs and offers referrals for local lenders offering the lowest rates and best terms on cash-out refinancings. Find a counselor in your area by checking the HUD website (see Resource section).

5

Apply for your mortgage refinancing with cash-out for debt consolidation.