Did you recently purchase a home and are looking to refinance? Maybe you want to get a more affordable monthly payment, lower interest rate, or change your loan term. Regardless of your goal for refinancing, you may be able to swap your current loan for a new loan much sooner than you think.
But before you apply with a mortgage lender, it’s vital to understand how refinancing works and what to consider when deciding if it’s a smart financial move.
When Can You Refinance a Mortgage
Depending on the type of home loan you currently have, you may be able to refinance your home right away. But in some instances, there’s a mandatory waiting period of at least six months. Let’s review how long it takes before you can refinance a house, depending on the type of loan.
Normal Wait Period for Refinancing
Most lenders will have you wait at least six months before you can refinance your loan with them again. This waiting period begins when you take out a mortgage or refinance your existing loan.
Special Conditions for Early Refinancing
Each homeowner is different, and lenders have various rules for different scenarios. The type of loan plays a role in how early you can get a refinance. There is no waiting period if you do a conventional refinance without taking any cash out. However, there will be a 6-month waiting period if you do a cash-out refinance.
Lenders also have different waiting times based on the type of loan you have. An FHA or VA refinance has a 7-month waiting period, while USDA loan refinances have 6-12-month waiting periods. Timeframes get more nuanced depending on the type of loan you have.
If you need to get a refinance right away, you can simply reach out to a different lender. The waiting window only applies if you want to work with the same lender. Expanding your horizons and considering other creditors can help you get a refinance faster.
Timeframes for Refinancing of Specific Loans
- Typical Length of a HomeRefinance: between 30 and 45 days, assuming there are no delays with the appraisal or inspection
- Conventional and Jumbo Loans Refinancing: no waiting period if you refinance with a new lender, but you may have to wait anywhere between six to 12 months to refinance with the same lender
- (Federal Housing Administration) FHA Simple Refinance: six months of timely payments
- FHA Streamline Refinance: 210-day waiting period and six consecutive monthly payments unless you refinance into a conventional loan
- FHA Cash-out Refinance: you must own and live in the home for at least 12 months
- VA Streamline Interest Rate ReductionRefinance Loan (IRRRL): six-month waiting period (starting from the due date of your first monthly payment), and some lenders will also require 12 months of timely payments
- VA Cash-Out Refinance: follows the same guidelines as the VA Streamline IRRRL
- USDA Non-Streamlined: 180 days of on-time payments
- USDA Streamlined-Assist: 12-month on consecutive-on time payments
- Cash-out Refinancing: six-month waiting period, and you must meet the lender’s minimum loan-to-value (LTV) threshold, which refers to the mortgage amount compared to the property value
Reasons to Refinance Your House
- Lower Monthly Payments: When you refinance your mortgage, you could opt for a longer loan term to get a more affordable monthly payment. But keep in mind that you’ll likely pay more interest since the lender will have more time to collect from you.
- Change Loan Types: If you want to convert from a government-backed home loan to a conventional mortgage, refinancing could be worthwhile if the numbers make sense. Some homeowners also refinance from adjustable-rate mortgages (ARMs) to fixed-rate mortgages to get a set monthly payment.
- Borrow from Home Equity: You can convert a portion of your home’s equity into cash with a cash-out refinance mortgage loan. Even better, the funds can be used to make costly home improvements, pay off high-interest debt, or do anything else you see fit.
- Get Rid of Your Mortgage Insurance: Many lenders require you to carry private mortgage insurance (PMI) if you put less than 20% for your down payment. And if you opt for an FHA loan, PMI is assessed for the life of the loan. But if your home’s value has increased significantly due to market conditions, you may be eligible for a new conventional mortgage with no private mortgage insurance (PMI). Or you can possibly switch from an FHA to a conventional loan to get rid of PMI and lower your monthly mortgage payment.
Factors to Consider Before Refinancing a Mortgage
Refinancing a mortgage can offer many benefits. However, there are pros and cons to keep in mind. Considering these factors can help you make a better decision.
The Costs of Refinancing
You will incur several expenses as you go through the application process. Origination and administrative fees will come up immediately, and closing costs often equal 2%-6% of the loan’s value.
If you are refinancing a $100,000 mortgage, you can end up paying $2,000-$6,000 in closing costs. Those extra expenses can get added to the backend of your new mortgage, which means more interest payments.
Examining the Break-Even Point
The administrative fees and closing costs will put you in the hole on your existing mortgage. It’s important to consider these expenses when calculating how much you will save in interest. A lower rate can help you profit from a refinance. However, a lower rate isn’t always enough for excessive closing costs.
The Impact on Your Credit Score
A mortgage lender will run a hard credit check to make sure you can keep up with the monthly mortgage payments. This hard credit check will temporarily reduce your credit score. While recovering from a hard credit inquiry is easy, it will temporarily make it more difficult to get financing from other creditors. Make sure you aren’t applying for any additional loans or credit cards after refinancing your property.
How Refinancing Impacts Your Mortgage
Refinancing will change your mortgage and impact your monthly payments. Since your house is likely your biggest expense, knowing what happens to your budget is essential.
How Refinancing Changes the Loan Terms
People refinance their properties for several reasons, but one common reason is to change their loan terms. A refinance will give you a new interest rate and loan duration. You can turn a 10-year mortgage into a 20-year mortgage and possibly end up with a lower interest rate. It’s also possible to turn a 10-year mortgage into a 5-year mortgage if you want to get out of debt sooner.
You will end up with a completely new loan when you refinance. Some people take out second mortgages with a home equity loan or a home equity line of credit to keep the terms of their current mortgage. This approach may be beneficial for people who are locked in great rates for their current mortgages.
The Impact on Monthly Payments
Most people refinance their mortgages to reduce their monthly payments. You can lower your monthly mortgage payments by securing a lower interest rate and extending your loan. Spreading the same principal across 20 years instead of 10 years reduces how much you owe each month. While you will pay more money in the long run, some homeowners prefer the comfort of having more room in their budgets for other costs.
Monthly payments can still go up if you get a higher interest rate. Homeowners who locked in great fixed rates before the pandemic will likely end up with elevated rates if they refinance now. This outcome may result in an extended loan term to compensate for the higher rate. You can also end up with a higher monthly mortgage payment if you shorten the loan’s duration to get out of debt sooner.
Refinancing Your Mortgage: Getting the Timing Right
Getting the timing right for refinancing your mortgage is crucial to maximizing the benefits of this financial decision. Every situation is unique, and there may be circumstances where refinancing sooner makes sense. Ultimately, deciding when to refinance your mortgage should be based on your financial situation and goals.
Frequently Asked Questions (FAQs)
Most lenders let you refinance a mortgage within six months of getting a mortgage or refinancing your current loan. However, you can get a refinance immediately if you work with a different lender.
You can technically get a refinance immediately by working with another financing company. However, constant refinances can enable bad spending habits and become problematic in the future. It’s best to wait at least six months before another refinance and prolong it so you avoid paying extra fees and closing costs. Get the right terms for your first refinance so you don’t have to do it again in a few months.
