"I have an adjustable rate subprime mortgage, the interest rate and payment will adjust soon.  I need to know the options available so I don't find myself strapped to make my mortgage payment."

Recently I have received quite a few inquiries along the lines described above. I've guided a few borrowers through a subprime to FHA re-finance process. If you find yourself in a similar situation, I want to share with you a checklist of six things you need to do so you do the right mortgage re-finance from an adjustable subprime mortgage to a conventional one. This is not a quick fix but will be very rewarding. I suggest you allow six months to get all this in order. As you review my steps you will see why.

Step 1: Understand Your Current Situation - I suggest you review the details of your current mortgage first. If you are in an adjustable rate mortgage you need to know exactly how much you will owe and when the interest rate will adjust. You also need to know if there is a pre-payment penalty with the loan and when this will expire. I would also suggest calculating the new monthly payment with the adjusted interest rate. To calculate this use the calculator on my website. This will help you know exactly how much time you have.

After you have gahtered all this information you will be in a much better position to make a workable plan.

Step 2: Review Your Credit - Even if you have six months left before your interest rate adjusts you should still check your credit report. The more time you have before the mortgage adjusts the more opportunities you will have to fix any potential credit issues. Remember you are entitled to a free credit report every 12 months, take advantage of it at AnnualCreditReport.Com. If the timing is closer then you may want to contact a mortgage professional and review the credit report with them.

Step 2 (b): Manage Your Credit - Once you have a credit report, the first thing to do is check for any errors in your report. If you find errors then contact the creditor and ask them to fix it, they must respond to your request within 30 days (take good notes). After addressing any errors you need to make sure you review my "Seven Ways to Destroy Your Credit" and do the exact opposite. Believe me when I say improving your credit can end up saving you thousands of dollars.

Step 3: Stabilize Your Income/Employment and Assets - Most lenders like to see stable employment and at least two months of expense reserves in your account. Remember that if you are a 1099 employee you will be treated as self-employed and many programs will require you to furnish tax returns.

For those of you who receive only cash income you need to follow my advice on documenting cash income so lenders can establish your income stream. W2 employees need to make sure they stay that way. Lenders will frown on you if you switch from a W2 to 1099 right before a mortgage application.

Step 4: Check Your Homes Value - This is pretty important these days and can make or break your re-finance transaction. The good ol' days of home appreciation is behind us. Don't rely on rumors or "he said, she said" for this either. Just because a house a few doors down sold for a certain amount doesn't mean your house will get the same value. There is more to an appraisal when it comes to determining price. Be prepared for the unexpected, but also know that there are ways for you to improve the value of your home.

If you are in the Phoenix, Arizona market, call me and I can get you in touch with a certified appraiser. Otherwise, contact a CTX Mortgage loan officer in your market and they can get you in touch with a qualified appraiser in your area.

Step 5: Review all Financing Options - Lower documentation loans especially when it comes to higher loan to value is difficult to obtain these days. What I mean is tha tif you need more than 90% of the home value to re-finance your loan then things will be tough. So, the best option for you will be to go with full documentation verification.

The three best options in todays market is the FHA loan, MyCommunity loan and a Fannie/Freddie fixed mortgages. If you think you qualify for the FHA Secure initiative, then go through the five step checklist.

Ask the mortgage person you end up working with lots of questions and don't fall for any gimmicks (like no closing costs, no credit check etc.) There is no such thing as a free lunch and you don't to pay for something you don't need. Depending on your time frame don't get rushed into something you do not understand. My advice is that if you don't understand it then ask until you do or walk away from it if the person can't explain it to your satisfaction.

As you can see these six steps can help you re-finance a subprime mortgage into a fixed conventional mortgage. I hope you now see what you need to allow yourself six months to complete these six steps. If you follow my six steps you'll be in the drivers seat and much better off on your next mortgage transaction.

H/T: Blown Mortgage for inspiring me to finally put this article together.

Visit the Arizona Mortgage Guru blog for all your home financing options.