Did you know refinancing your mortgage could mean lowering your monthly payment, building equity, and saving thousands of dollars in interest? 

Not sure how refinancing works? Are you wondering how soon can you refinance a mortgage?

In simple terms, a refinance is replacing your current mortgage loan with a new loan. When you refinance, the money you get through the refinance loan pays off your current mortgage. Then, you’ll have a brand new loan with new terms. 

There are many reasons people choose to refinance including getting a better interest rate, better terms, cashing out on equity, and more. We will visit the various benefits of refinancing, different rules for refinancing, and what the refinance process generally looks like. 

Just as homeownership is a fantastic way to build wealth, a sensible mortgage refinance can be a useful tool to fast-track the return on your investment.  If you recently bought a house, you may be wondering if it’s too soon to refinance.

Read on to determine if a refinance is right for you now or if you should wait.

Why Refinance?

There are a wide variety of reasons people choose to refinance their mortgage. Here are a few of the most common:

  • To lock in a lower interest rate when market rates drop, usually resulting in a lower monthly payment
  • To combine loans and have only one monthly payment
  • To do a cash-out refinance, usually to invest the funds back into the property via a home remodel 
  • To eliminate private mortgage insurance if you have paid more than 20% of your home value
  • To switch from an adjustable-rate mortgage to a fixed-rate mortgage
  • To reduce the length of the loan, usually to pay it off faster and pay less total interest

If any of these sound like something you want to do, it’s important to know the refinance waiting period for your loan type. 

Home Finance Options: How Soon Can You Refinance a Mortgage?

There are no hard and fast rules about how quickly you can refinance your mortgage. Depending on the mortgage type, some homeowners may refinance immediately and others may refinance in as little as six months. 

Please note that while some loan types allow immediate refinancing, individual lending institutions may have their own established waiting periods.

Refinance Requirements by Loan Type

Refinance mortgage options vary depending on your loan type, personal financial situation, payment history, and refinancing goals. Even loan types with stricter refinance timelines tend to allow refinancing within a relatively short period of time. Usually, so long as the borrower has made their payments on time they will be eligible to refinance.

Conventional Loans: No Waiting Period

A conventional loan is any type of home loan that is not offered or secured by the government, but rather by a private lending institution. 

There is generally no waiting period before you can refinance your conventional loan, though some lenders may implement a waiting period. 

FHA Loans: A Little as 6 Months

An FHA loan is a government-backed loan secured by the Federal Housing Administration. FHA offers several refinance options. The restrictions depend upon the type of refinancing you wish to do. 

Cash-Out Refinance

This type of refinancing has a relatively longer waiting period. An FHA Cash-Out Refinance requires that the homeowner must own and occupy the house for at least 12 months.

Rate and Term Refinance

For a Rate and Term Refinance, the borrower must have the original loan for at least 12 months or meet other requirements.

If the borrower has had the loan for less than 12 months, they are limited to an 85% Loan-to-Value mortgage. In other words, the homeowner can only borrow 85% of the total home value or less. These borrowers must show all their payments in the last six months were on time. 

Simple Refinance

The borrower must have made at least six months of on-time monthly payments. If they have owned the house for longer than six months, they can have no more than one late payment in the six months prior to that. 

Streamline Refinance

The borrower must have made at least six months of on-time payments and have had the mortgage for at least 210 days (approximately seven months). At least five out of six payments must have been on time. 

VA Loans: As Little as 7 Months 

A VA Loan is a loan available through the U.S. Department of Veteran Affairs for veterans, service members, and their surviving spouses. 

VA loans offer two refinance options: interest rate reduction (also known as IRRRL) or cash-out refinance.

For both types, the homeowner must be up-to-date on their mortgage payments. At least 210 days (approximately seven months) must have passed since the first payment.

USDA Loans: As Little as 6 Months

A USDA Loan is made available through the U.S. Department of Agriculture and allows buyers in eligible rural areas to purchase with zero down payment.

USDA loans allow three types of refinancing: non-streamlined, streamlined, and streamlined-assist.

  • Streamlined or non-streamlined: Borrowers must have made on-time payments for 180 days (approximately six months) 
  • Streamlined-Assist: Borrowers must have made on-time payments for 12 consecutive months

Jumbo Loans: No Waiting Period

A jumbo loan is a loan with a mortgage amount that exceeds the limits set by Fannie Mae and Freddie Mac.

Since jumbo loans aren’t backed by Fannie Mae or Freddie Mac, they are subject to each lender’s requirements. Therefore, jumbo loan refinancing rules are similar to conventional loan refinancing and do not have a set waiting period.  

How to Decide if Refinancing a Mortgage is Right for You

The answer to whether or not you should refinance lies in your economic situation and goals. It is truly different for every person. 

A couple of quick rule-of-thumb signs refinancing might be right for you are:

  • Your credit score has improved significantly 
  • Interest rates have dropped enough for you to cut your interest rate by at least half a percentage point

That being said, there are many refinance options available, and each one comes with different requirements, benefits, costs, and risks depending on your situation and the type of loan you have. 

Types of Refinance Mortgage Loans

It can be difficult to know which refinance option is best for you. Let’s take a look at some of the most common types of mortgage refinance loans, and signs that they might be the right fit for your situation.   

Cash-Out Refinance

Best if you’ve owned your home for a while and want to complete a large project like a kitchen remodel.

If this sounds like you, a cash-out refinance might be right for you. 

This is a refinancing option in which the borrower takes out a new loan for a larger amount than what they currently owe. Their lender then cuts them a check for the difference between the two loan amounts. 

The borrower walks away with cash, but their monthly payment may be larger under the new loan. 

If you’re considering a cash-out refinance, take the time to review the terms and consider how a change in your monthly payment could affect your budget. This refinance may be right for you if you have a lot of equity and your budget can accommodate a larger house payment. 

Cash-In Refinance

Best if you’ve recently gotten a cash injection — like a bonus or inheritance — and you want to increase equity, improve terms, or pay off your mortgage faster. 

If this sounds like you, you may wish to consider a cash-in refinance.

Opposite of a cash-out refinance, a cash-in refinance means the borrower makes an extra-large payment on their loan. By paying down a large portion of the loan, the borrower now has a lower loan-to-value (LTV) ratio and higher equity. This could result in lower monthly payments or a lower interest rate. 

This refinancing option is great for homeowners who are upside-down in their mortgages or who want to substantially increase equity. 

Rate and Term Refinance

Best if you’ve significantly improved your credit score and/or mortgage rates are significantly less than they were when you bought your home. 

If this sounds like you, then a Rate and Term Refinance might be the best bet. 

This type of refinancing allows borrowers to refinance into a lower interest rate or better loan terms within an existing mortgage. The loan will amount will stay the same with a Rate and Term Refinance. This tends to be a good option when mortgage rates have dropped or the borrower’s economic status has improved. 

Even though the loan amount will remain the same, better interest rates and terms could mean a lower monthly payment and the ability to pay down your mortgage faster. 

15-Year Fixed Refinance

Best if you live in your “forever home,” want to be debt-free, and can handle a larger monthly payment. 

If this sounds like you, you may want to consider a 15-Year Fixed Refinance.

These days, buyers often purchase homes with 30-year, fixed-rate mortgages. Refinancing into a 15-year mortgage helps pay off your home faster and could save thousands of dollars in interest over the life of the loan. Because your loan amount will be compressed into a shorter period, it’s likely the monthly payment will go up. 

FHA Streamline Refinance

Best for FHA borrowers who want to get a lower interest rate and monthly payment.

If this is you, consider an FHA Streamline Refinance. 

This type of refinancing is “streamlined” in that it has less paperwork, no income or credit verification requirements, and no home appraisal. It generally closes faster and has cheaper closing costs.

Sometimes borrowers may choose between a credit-qualifying refinance (lender checks their credit and debt-to-income ratio) or a non-credit-qualifying streamline

VA Streamline Refinance

Best for VA borrowers who wish to lower their interest rate or get better terms on their loan.

Are you a veteran, service member, or surviving spouse of a veteran with a VA loan? If so, you might consider a VA Streamline Refinance.

This type of refinancing allows VA borrowers to lower their interest rate and monthly payment, shorten or lengthen their loan term, or switch from an adjustable-rate mortgage to a fixed-rate mortgage. 

This type of refinancing is streamlined in that usually the borrower will only need to show proof of residence to qualify.  

USDA Streamline Refinance

Best for those who have little to no equity in a USDA-eligible property, but who want to take advantage of market conditions to get better loan terms. 

If this is you, consider a USDA Streamline Refinance. 

This type of refinancing is great for USDA-qualified borrowers with little equity in their homes. It allows them to lower their interest rates and/or change their loan terms. “Streamlined” refers to no requirement for appraisal or inspections and usually some credit flexibility. 

Some borrowers may qualify for the more-popular USDA Streamline-Assist. This type of refinancing has all the benefits of a standard USDA Streamline Refinance but is even easier to qualify for. Streamline-Assist has no credit check requirement, no ratio requirements, and closing costs can be included in the loan. 

Short Refinance

Best for those who have defaulted on loan payments and are facing foreclosure.

A short refinance may help you keep your house. 

This type of refinancing means your lender will replace your existing mortgage with a reduced balance so that monthly payments are lowered to a more affordable amount. The borrower can keep their property, while the lender loses less money than they would have in a foreclosure or short sale. 

This should be a last resort because it can significantly damage your credit. Your lender has to approve it as well. 

Can You Refinance a Reverse Mortgage?

The short answer is yes.

A reverse mortgage is for homeowners over age 62, usually who have paid off their home or have a significant amount of equity to draw from. With a reverse mortgage, the lender “pays” the homeowner a monthly payment from their equity, acting as a form of monthly income for the retired homeowner. 

Refinancing a reverse mortgage works a lot like refinancing a conventional mortgage. You can refinance a reverse mortgage for a better interest rate or a different monthly payout. 

Please note, that borrowers still must pay fees related to homeownership such as taxes and insurance. Once the borrower sells the house, permanently moves out, or passes away, the loan must be repaid. 

The Process of Refinancing a Mortgage

The mortgage refinance process has some similarities to buying a house, but it’s a lot less complicated and includes fewer steps. How long a mortgage refinance takes depends largely on each situation, but the typical length of time is 30 to 45 days. 

Here is a general mortgage refinance timeline:

Application

Once you have determined which refinance option is best for you, the next step is to apply with your lender (or a new lender if you so choose). This is a very similar process to the one you went through to qualify for your mortgage when you bought your home. Your lender will look at your income, assets, debt, and credit score to determine if you qualify for the refinance. 

Some of the documents you will need to provide to your lender are: 

  • Two most recent pay stubs
  • Two most recent W-2s
  • Two most recent bank statements

If you’re married and depending on what state you live in, your lender may need to see the same documents from your spouse. They may also need to see additional documents if you’re self-employed.

Lock in Interest Rate

Once your application is approved, you may be given the option to lock in your interest rate. This will protect you from rising rates while you close on your loan. 

Rate locks usually last 15 to 60 days, depending on your loan type, location, and lender. Sometimes your lender will give you a better deal if you agree to a shorter rate lock period. Be forewarned though, if your loan doesn’t close on time, you may be charged fees to extend the rate lock. 

You will probably also have the option to float your rate. This is a gamble because you could end up with a lower rate — or a higher one. You may be given a float-down option, but if you like where interest rates are currently sitting, it’s probably a good idea to go ahead and lock in your rate.  

Underwriting

During the underwriting period, your lender verifies financials and makes sure all the documents you submitted are correct.

They also verify details of your home, such as the purchase date and value. Your lender needs to know the current value of the property to determine which refinance options you qualify for.

For example, if you want to do a cash-out refinance, your lender will need to know how much equity you have in the home so they can determine how much you qualify to take out. If you want to drop private mortgage insurance, they need to know that you have paid off 20% of the current property value. 

Appraisal

Just like when you bought your home, your lender will order an appraisal. This means an appraiser will come to your house and do a full inspection, top to bottom, to determine the value of your property. 

Similar to putting your home on the market, it’s a good idea to get your home in tip-top shape for the appraisal. Do any repairs you’ve been putting off and make your house look its best. We also advise leaving a list of updates you’ve made to the property for the appraiser to see. 

Doing these activities will help make sure your home appraises for equal to or greater than the loan amount on your application. If the home appraises, your lender will contact you about moving on to closing. 

If your home does not appraise (or appraises for less than the loan amount), you can choose to decrease the amount of money you get through the refinance or cancel your application. You can also bring money to the table to make up the difference and get the terms you were hoping for.  

Closing

Just like when you bought your home, you will “close” on your new loan. A refinance closing is faster and less complicated than a purchase closing. Those present at the closing will be you (the homeowner) and a representative from your mortgage lender or title company. 

Before closing, you will receive a document called a Closing Disclosure that lists all the numbers associated with your new loan. At the closing, the representative will explain all the financials to you as well as the terms of your new loan. They will provide you with all the documents you need to sign to finalize your refinance. 

You will pay any closing costs associated with the refinance at the closing table. Alternately, if you are doing a cash-out refinance, you will receive your funds at closing. 

After closing, there will be a three-day grace period in which you can back out of the refinance. This is called your right of rescission. You are free to cancel the refinance at any time during the grace period. 

Is Refinancing Right For You? 

How soon can you refinance a mortgage? The answer depends less on timing and more on your personal situation. Your loan type, payment history, credit score, income, debt, and the current market all play into your refinance readiness. If you’re still not sure if refinancing is the best decision, consider alternatives like a second mortgage

Just as every homeowner is different, every refinance is different. There are many refinance options available for each person’s loan type, situation, needs, and financial goals. If you would like one-on-one guidance to determine which options are best for you, we encourage you to contact us. Use the Leave a Reply form below  — we’d love to hear from you!

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