Some mortgages allow you to refinance once you get the original loan. Others necessitate a “seasoning” period. The speed with which you can refinance a mortgage is determined by the type of home loan you have and the refinance mortgage you obtain. If you want, you can refinance your mortgage immediately after you get it. Others necessitate a period—what the mortgage industry refers to as “seasoning.” This article discusses the seasoning rules for conventional, FHA, VA, USDA, and jumbo loans. It also talks about how soon you can refinance a mortgage.
How Soon Can you Refinance a Mortgage?
How soon you can refinance a mortgage depends on the first loan terms and the refinancing you want. Expect a minimum of six months and a maximum of 24 months.
While some mortgages can be refinanced immediately, you should usually wait at least six months before seeking a cash-out refinance on your home, and some mortgages require a two-year wait. The length of time you have depends on the nature of your original mortgage and the refinancing you seek.
Aside from these time limits, there are other practical things to consider before deciding if refinancing is right for you. Refinancing is getting a new home loan to replace an old one.
When Can You Refinance a Mortgage After Buying It?
The time it takes to refinance a mortgage depends on your loan type. Many lenders require you to have the loan for a certain amount before refinancing, which is a “seasoning” period.
When you can refinance your mortgage depends on the refinance option you choose, whether it’s a rate-and-term refinance to change your interest rate and term, a cash-out refinance to pocket the difference or a streamlined refinance, which is only available for government-backed loans.
Here’s a quick rundown:
#1. Conventional loan refinancing guidelines
If your loan is not backed by the Federal Housing Administration, the Department of Veterans Affairs, or the Department of Agriculture and is not a jumbo loan, you most likely have a conventional mortgage. A conventional mortgage meets Fannie Mae and Freddie Mac qualification standards.
You can soon refinance a conventional mortgage loan whenever you want. You may have to wait up to six months before refinancing with the same lender. However, this does not preclude you from refinancing with a different lender.
Cash-out refinances are an exception. You must have owned the home for at least six months to qualify for a cash-out refinance on a conventional mortgage unless you inherited it or were awarded it in a divorce, separation, or dissolution of a domestic partnership.
#2. FHA loan refinancing guidelines
An FHA loan is a mortgage insured by the Federal Housing Administration. The FHA offers several types of refinances, each with its own rules. You’re looking at an FHA cash-out refinance if you want to borrow more than you owe and take the difference in cash.
You can choose an FHA rate and term refinance or an FHA simple refinance if you don’t want to take cash out and are willing to get (and pay for) an appraisal. An FHA streamline refinance may be what you’re looking for if you have an FHA loan and want to refinance into another FHA loan without getting an appraisal.
- Make a withdrawal.
- Rate and term, as well as simple refinance
- FHA simplifies.
#3. VA loan refinancing guidelines
To refinance into a VA loan, a mortgage backed by the Department of Veterans Affairs, you must wait for at least 210 days or six payments, whichever is greater. This requirement applies whether you’re refinancing with a VA cash-out or a VA Interest Rate Reduction Refinance Loan, also known as an IRRRL.
#4. USDA loan refinancing guidelines
The USDA has two mortgage programs for people who want to buy a home in a rural area: guaranteed loans and direct loans. You must have had the mortgage for at least 12 months to refinance a guaranteed loan. There is no waiting period for refinancing direct loans.
The USDA provides three refinancing options for another USDA loan. You must have made on-time payments in the last 180 days if you get a streamlined or non-streamlined refinance. To be eligible for the streamlined assistance program, you must have paid your mortgage on time for the past 12 months.
#5. Jumbo loan refinancing guidelines
In most cases, you can refinance a jumbo mortgage at any time, just like a conventional loan. Jumbo loans are for amounts higher than what Fannie Mae and Freddie Mac will lend. Most lenders have stricter requirements for approving jumbo loans than regular loans.
When Is a Quick Refinance a Good Idea?
Refinancing soon after getting your first mortgage can serve several purposes:
#1. To reduce your monthly payments:
A new loan with a longer repayment term may lower your monthly payment (a strategy usually means increasing the total amount you’ll pay over the life of the loan).
#2. To get rid of mortgage insurance:
Conventional mortgages typically require private mortgage insurance (PMI) if less than 20% of the loan is put down at closing. Some government-backed loans require a monthly mortgage insurance premium (MIP) unless a down payment of at least 10% is made. If the market value of your home has increased rapidly, or you have more money to put down on a new mortgage, refinancing without mortgage insurance could save you money.
#3. To adjust your interest rate:
Replacing your current mortgage with a lower interest rate can help you save money over the life of the loan. In the same way, switching from a variable-rate loan with variable payments to a fixed-rate loan with more stable payments can save you money and make it easier to budget and plan your finances in other ways.
#4. To obtain cash:
A cash-out loan, which combines a new mortgage with a loan secured by your home equity, can be used for home improvement projects or any other purpose you choose. You should know that you need more than 20% equity in your home to qualify for a cash-out refinance. If you didn’t make a big down payment on your original mortgage or your home’s market value has gone up quickly and dramatically, you may not have enough equity after only six months to get a cash-out loan.
#5. To add or remove a cosigner:
If you got your first mortgage with someone else, like your spouse, and you want that person to be taken off the loan (for example, if you are getting a divorce), you must refinance under your name or with someone else.
How Soon you Refinance a Mortgage Affects your Credit Score
Refinancing a mortgage has an impact on your credit scores, and doing so soon after getting your first mortgage can amplify it:
- Applying for a mortgage refinance triggers a hard inquiry, which can result in a minor drop in your credit score. After you accept the loan, your credit score may drop slightly more.
- Refinancing soon after obtaining a mortgage can result in a cumulative decrease in credit scores. Your credit scores will typically recover from the dip caused by your initial mortgage application within a few months. Still, if you apply for another mortgage within that time frame, your scores may not have enough time to recover fully—and the new application process will likely ding them even more.
Reasons to Refinance a Mortgage
Now that you know how soon you can refinance a mortgage make sure you do so for a good reason. Many people refinance to get a lower interest rate on their mortgage as well as lower monthly payments. However, that is not the only advantage of refinancing. You might want to refinance to:
- Reduce the loan’s repayment period, for example, from 30 to 15 years. Even if you lower your interest rate, your monthly payments on the new loan may be higher, but you can save thousands of dollars by paying interest for a shorter period.
- Convert your adjustable-rate mortgage to a fixed-rate loan (or vice versa).
- Resolve a divorce, separation, or domestic partnership dissolution.
- Borrow against the equity in your home to pay for home improvements or other expenses.
How soon is too soon to refinance?
While some mortgages can be refinanced immediately, you should usually wait at least six months before seeking a cash-out refinance on your home, and some mortgages require a two-year wait.
Does refinancing hurt your credit?
Your credit score will go down for a short time when you refinance, but it may go up in the long run. Refinancing can significantly affect how much you owe and/or how much you pay each month, and lenders like to see both. Your score will usually drop a few points, but it will rise again within a few months.
Is it worth it to refinance?
Refinancing is a good decision if it will save you money, help you build equity, and allow you to pay off your mortgage faster. It’s best if you can lower your interest rate by half to three-quarters of a percentage point and plan to stay in your home long enough to make up for the closing costs.
Does refinancing cost more in the long run?
Refinancing can lower your monthly payment and increase the loan’s overall cost if you add years to your mortgage. If you need to refinance to keep your home, paying more may be worth it in the long run.
Do you lose equity when you refinance?
Even if you refinance your home, the equity you have built up in it over the years, whether through principal repayment or price appreciation, remains yours.
How can I lower my mortgage rate without refinancing?
However, getting a lower mortgage interest rate without refinancing is one way. With a mortgage modification, you can change the original terms of your home loan if the money is tight. Your lender may modify your loan by extending the term.
Is it worth refinancing to save $100 a month?
With a $100 monthly savings, it would take 40 months—more than three years—to recoup your closing costs. A refinance may be worthwhile if you plan to stay in your home for at least four years. If not, refinancing will almost certainly cost you more than it will save you.
Is 2023 a good time to refinance?
While 2023 is unlikely to provide the same level of opportunity as 2020 and 2021, this year will still be a good time for millions of homeowners to refinance. With record levels of homeowner equity, many people are considering cash-out refinances.
How many times can you refinance your house?
There is no limit to how often you can refinance a mortgage, though a lender may impose a waiting period between when you close on a loan and refinance to a new one.
Is it better to refinance with your current lender?
If your current mortgage lender can offer you a better deal than the others you’ve considered, it’s best to refinance with them. You won’t know if this is the case until you compare rates from at least a few other mortgage brokers or companies.
What do banks get out of refinancing?
When you refinance your mortgage, you trade your old one for a new one, which often has a different interest rate and principal. Your lender will then use the proceeds of the newer mortgage to pay off the older one, leaving you with only one loan and one monthly payment.
Why do mortgage lenders want you to refinance?
Your servicer wants to refinance your mortgage for two reasons: first, to make money, and second, to keep you from leaving your servicing portfolio for another lender. As you might expect, some services offer lower interest rates to get their current customers to refinance.
What are the refinance rates right now?
The average 30-year fixed refinance APR in the United States is 6.89%. According to Bankrate’s most recent survey of the nation’s largest refinance lenders, the average 15-year fixed refinance APR is 6.20%.
Conclusion
Refinancing soon after getting a mortgage can save you money, but you should weigh the costs of a new loan against the potential savings before proceeding.
Because your credit scores impact refinancing, you should approach the process the same way you would when applying for a first mortgage. Check your credit scores before and during the process to see where you stand, and if necessary, consider delaying the refinancing process for a few months to improve your credit profile.
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