How soon can I refinance my mortgage?
Refinancing your mortgage may unlock various financial benefits. But how soon can you refinance a home loan to enjoy these benefits?
Understanding the rules and timing can save you money and help you achieve your financial goals faster.
In this article, we’ll explore the various types of mortgages and their specific refinancing requirements, ensuring you’re well-informed and ready to make the best decision for your situation.
Dive into more detail and discover your refinancing options by completing our digital mortgage application. Our process can be completed in 10-15 minutes and can give you the clarity you need to make the right refinancing decision!
How Soon Can I Refinance My House?
The timing for when to refinance a home loan depends on the type of mortgage you have and any specific lender requirements.
To better understand how soon after buying a house can you refinance, let’s take a look at different mortgage loans and their refinance options:
Conventional Loans
If you have a conventional loan, refinancing can be relatively straightforward. Typically, you can do a no-cash-out refinance immediately after closing on the original home loan. However, many lenders impose a six-month “seasoning period” if you want to refinance with the same lender.
This waiting period can sometimes extend up to two years, but you can often avoid this restriction by shopping around and refinancing with a different lender.
A cash-out refinance allows you to take out a new loan for more than you owe on your mortgage and pocket the extra money. There is usually a waiting period of at least six months from the date of closing on the original mortgage.
FHA Loans
If you’re wondering how soon can you refinance a FHA loan, the rules below highlight the different types of refinancing options for a FHA loan:
- FHA Streamline Refinance: Designed to be faster and require less documentation. You must wait at least 210 days from the closing of your original mortgage and have made at least six on-time monthly payments.
- FHA cash-out refinance: You need to have owned the home for at least 12 months if it's your primary residence.
- FHA rate-and-term refinance: The waiting period is typically six months from the date of your original mortgage closing where the goal is to change the loan’s interest rate or term.
VA Loans
For VA loans, the Interest Rate Reduction Refinance Loan (IRRRL), also known as a VA streamline refinance, requires a waiting period of at least 210 days from the date of your original VA loan closing or after making six on-time payments, whichever is later. The VA cash-out refinance also requires a 210-day wait or six on-time payments.
USDA Loans
You need to have made on-time payments for at least 12 consecutive months before you can apply for a USDA streamlined refinance. Unlike other government-backed loans, USDA loans do not offer a cash-out refinance option.
Jumbo Loans
Jumbo loans are non-conforming loans that exceed the borrowing limits set by Fannie Mae and Freddie Mac. The rules for refinancing jumbo loans are less standardized. The waiting period and eligibility requirements are determined by individual lender policies, so you’ll need to consult with your lender to understand their specific guidelines.
Loan Modification
If your original loan was modified to make payments more affordable, you might need to wait anywhere from three months to two years before you can refinance. This waiting period is intended to ensure that the modifications have stabilized your financial situation before you take on a new loan.
Is It a Good Idea to Refinance Quickly?
If you’re a homeowner, you may be wondering “when can I refinance my house?” Here are several scenarios where refinancing quickly might be beneficial:
1. Lowering Your Monthly Payments
If you're looking to reduce your monthly expenses, refinancing to a loan with a longer repayment term can lower your monthly payments. However, be aware that extending the loan term will increase the total amount you pay over the life of the loan due to added interest costs.
2. Eliminating Mortgage Insurance
Many conventional mortgages require private mortgage insurance (PMI) if you put down less than 20% of the loan amount at closing. Similarly, government-backed loans might require a monthly mortgage insurance premium (MIP) unless you make a down payment of at least 10%. If your home's market value has increased quickly or if you can put more down on a new mortgage, refinancing to eliminate mortgage insurance can save you money.
3. Securing a Lower Interest Rate
One of the most common reasons to refinance is to obtain a lower interest rate. If interest rates have dropped since you closed your original mortgage, refinancing can reduce the total amount you'll pay over the life of the loan.
Additionally, if you have an adjustable-rate mortgage (ARM) with payments that can change annually, switching to a more predictable fixed-rate mortgage (FRM) can simplify budgeting and save you money in the long run.
4. Accessing Cash
A cash-out refinance allows you to take out a new mortgage that combines your existing loan with a loan backed by your home equity. This can provide funds for home improvement projects or other expenses. However, to qualify for a cash-out refinance, your home equity typically must be greater than 20%. This means you need to have made a significant down payment or your home's market value must have increased rapidly.
5. Owning Your Home Sooner
Refinancing to a loan with a shorter term, such as from a 30-year mortgage to a 15-year mortgage, can increase your monthly payments but reduce the amount of interest you pay over the life of the loan. This strategy allows you to own your home outright much faster.
When Is Refinancing My Mortgage the Right Move?
Here are key factors to consider when determining if refinancing is the right move for you:
1. Improved Credit Score
If your credit score has improved since you first obtained your mortgage, refinancing could allow you to secure a lower interest rate. This improvement might result from paying off significant amounts of debt or negative entries such as bankruptcies or foreclosures falling off your credit report. A better credit score can lead to more favorable loan terms.
2. Increasing the Down Payment
If you've recently come into a substantial amount of money, such as from selling an asset or receiving an inheritance, you might consider increasing the down payment on a new loan. A larger down payment can lower your interest rate and reduce closing costs.
3. Consolidating Debt
In a low-interest-rate environment, a cash-out refinance can be a strategic move to consolidate higher-interest debt, such as credit card balances or personal loans, into your mortgage. This can simplify your payments and potentially lower the interest rate on your overall debt. However, it’s important to be cautious as you are using your home equity and could find yourself in the same situation if you accumulate more debt later.
4. Consolidating Home Loans
If you have multiple home loans, such as a second mortgage or a home equity line of credit (HELOC), refinancing can consolidate these into a single payment, often at a lower interest rate. This simplification can make managing your finances easier.
5. Major Life Changes
Certain life events, such as divorce or the death of a co-borrower, may necessitate refinancing. This allows one party to take over the mortgage entirely or adjust the terms to better fit the new financial situation.
Does Refinancing Impact My Credit Score?
When you apply for a mortgage refinance, the lender will perform a credit check known as a hard inquiry. This hard inquiry can cause a slight dip in your credit score, usually by a few points, as it indicates to credit scoring models that you are seeking new credit.
Credit scoring models like FICO and VantageScore consider multiple mortgage inquiries within a short period (typically 14 to 45 days) as a single inquiry to encourage rate shopping. So, it’s important to make sure you submit your refinance applications within this period. If you submit multiple applications outside this window, it can cause a further reduction in your credit score.
Refinancing can also affect your credit in the longer term. Lenders look at the average age of your credit accounts, and opening a new mortgage refinance account can lower this average age, which might slightly reduce your score. Additionally, the new loan resets the clock on your payment history for that account, which could impact how your credit is evaluated.
Credit score reductions due to new credit typically only amount to a few points. However, if your starting score is already borderline for certain loan terms, even a small decrease can cause lenders to view your second mortgage application less favorably. This can result in higher interest rates or less favorable loan conditions compared to your original mortgage.
How Can I Apply for a Mortgage Refinance?
There are a few ways you can apply for a mortgage refinance. You can choose to go with your existing lender or can choose a lender that provides you with better options. Whether your goal is to lower your monthly payments, take cash out, or switch to a fixed interest rate - Rate has options for you!
To apply for a mortgage refinance, simply complete our digital application. Applying for a refinance with Rate is quick and simple, and if you need any help, reach out to one of our experts who is dedicated to helping you understand what your different options are!
Mortgage Refinance FAQs
1. Can I refinance my mortgage if I have bad credit?
Yes, it is possible to refinance with bad credit, though it may be more challenging. Lenders will scrutinize your financial situation more closely and may offer higher interest rates. Consider improving your credit score before applying, or look into government-backed loan programs like FHA, VA, or USDA, which may have more lenient credit requirements.
2. What are the costs associated with refinancing?
Refinancing involves several costs, including application fees, appraisal fees, loan origination fees, title insurance, and closing costs. These can add up to 2-5% of the loan amount. Some lenders may offer a no-closing-cost refinance, where these costs are rolled into the loan principal or exchanged for a slightly higher interest rate.
3. How long does the refinancing process take?
The refinancing process typically takes 30-45 days from application to closing. However, this timeline can vary based on the complexity of your financial situation, the efficiency of the lender, and how quickly you can provide the necessary documentation.
4. Can I refinance my mortgage if I am underwater on my loan?
Refinancing an underwater mortgage (where you owe more than the home's current value) is possible through specific programs like the HARP (Home Affordable Refinance Program), which helps eligible homeowners refinance despite negative equity. It's essential to check if you qualify for such programs and consult with your lender to explore available options.
Rate, Inc. is a private corporation organized under the laws of the State of Delaware. It has no affiliation with the US Department of Housing and Urban Development, the US Department of Veterans Affairs, the US Department of Agriculture, or any other government agency.
Using funds from a Cash-out Refinance to consolidate debt may result in the debt taking longer to pay off as it will be combined with borrower’s mortgage principle amount and will be paid off over the full loan term. Contact Rate, Inc. for more information.
By refinancing, you may pay more in costs and interest over the extended term.