How Soon Can You Refinance a Mortgage?


How Soon Can You Refinance a Mortgage

By November of 2020, mortgage interest rates had reached all-time lows 13 times. While mortgage rates do seem to be finally rising a bit, the interest rates are still quite favorable to my homebuyers.

Historically low interest rates, low inventory, and a desire to relocate driven by the pandemic have created a competitive seller's market in many areas of the US. The prices of homes in some markets has risen impressively, as people are willing to spend on the sale price considering they will be able to pay so little in interest.

That's all great news for people buying and selling a home right now, but what if you recently purchased a home at a higher interest rate? How soon can you refinance a mortgage after you've purchased a house?

We've put together this guide to refinancing to help you understand when you're eligible to refinance after you've bought a property.

How Soon Can You Refinance a Mortgage?

The type of home loan you have will determine how soon you can refinance after buying in addition to the type of loan you're looking to get through refinancing.

In some cases, you might be able to immediately refinance after purchasing a home. In others, a period of time has to pass (known as "seasoning") before you can refinance your mortgage.

You'll want to analyze your current situation before embarking on refinancing a mortgage. Remember, refinancing comes with closing costs just like your initial mortgage did. That means that it often only makes financial sense to refinance if you are planning to stay in the home for at least several years.

If you aren't planning on living at the property for much longer, refinancing most likely doesn't make sense. If you're thinking about selling in the near future, you can learn more about the top iBuyers here.

Refinancing a Mortgage With a Conventional Loan

If you don't have a government-backed loan or a jumbo loan, you most likely have a conventional loan. The qualification standards for conventional loans are set by Freddie Mac and Fannie Mae.

With conventional loans, you can typically refinance as soon as you want after getting the initial mortgage. If you want to refinance with the same lender you might have to wait six months, but that doesn't mean you can't choose a different lender and refinance sooner.

One exception to this, though, is cash-out refinances. If you have a conventional mortgage and you want to get a cash-out refinance, you usually have to have owned the house for at least six months. That is, unless you were awarded the property in a separation, divorce, or dissolution of a domestic partnership or if you inherited the property.

Refinancing a Mortgage With an FHA Loan

There are several different types of refinances for FHA loans, which are mortgages that are insured by the Federal Housing Administration.

Cash-Out

This is the type of refinancing you'll want to look at if you want to be able to borrow more than you owe in order to take the difference as cash.

Before you can apply for a cash-out refinance with an FHA loan, you have to own the house and live in it as your primary residence for at least 12 months. You have to have had a mortgage for at least six months before a cash-out refinance, and there's no holdup on refinancing if you own the home free and clear.

To get an FHA cash-out refinance, you have to have been on time with any due mortgage payments in the last 12 months.

Simple and Rate and Term Refinance

If you're willing to pay for an appraisal and you aren't interested in taking cash out, this is likely the choice for you.

Before you refinance, you're required to wait at least seven months. You'll need to have been on time with any mortgage payments that were due in the previous six months. In the six months before that, you are allowed one late payment that is more than 30 days late.

FHA Streamline

If you are looking to refinance to another type of FHA loan without dealing with the hassle and cost of an appraisal, an FHA streamline refinance could be the right choice for you. This is a faster option for switching between FHA loans that requires less paperwork and no appraisal.

In order to qualify for a streamline refinance, you'll have to have had the mortgage for at least 210 days. Additionally, you must have made at least six monthly payments. The most recent six payments need to have been paid on time. In the six months before that, you are allowed one late payment of 30 or more days late.

Refinancing a Mortgage With a USDA Loan

There are two different mortgage programs available for rural homebuyers through the U.S. Department of Agriculture. These are direct loans and guaranteed loans.

There is no waiting period if you want to refinance a direct loan. For guaranteed loans, it's required that you have had the mortgage for 12 months at a minimum.

You can refinance into another type of USDA loan through one of three refinance options. These are streamlined, non-streamlined, and streamlined-assist.

For both the streamlined and non-streamlined refinance options, your mortgage payments need to have been on time during the last 180 days. If you're looking at the streamlined assist program, your mortgage payments must have been on time in the previous 12 months.

Refinancing a Mortgage With a VA Loan

VA loans are mortgages that are backed by the Department of Veterans Affairs. In order to refinance these loans, you have to wait until you've made six payments or at least 210 days, whichever of these two options is longer. This wait period is required for either a VA Interest Rate Reduction Refinance Loan or a VA cash-out refinance.

Refinancing With a Jumbo Loan

You typically are allowed to refinance a jumbo mortgage whenever you choose, much like with conventional loans. These are loans that are specifically for amounts of money that exceed the loan limits that are used by Freddie Mac and Fannie Mae. For this reason, the underwriting requirements of lenders are often stricter for these loans than for conventional loans.

Guide to Refinancing: When Does It Make Sense?

Refinancing can be a bit confusing as a concept when you first encounter the idea. Basically, when you got your initial mortgage to pay for your house, the money you were loaned goes to the seller of the home. When you are refinancing your home, you are taking out a new loan to pay off the balance of your mortgage and starting an entirely new loan.

To Shorten Your Mortgage Term

Some homeowners choose to shorten the term of their loan so that they can save thousands of dollars in interest in the long run. This does mean, however, that the monthly payments will increase. People who reach a point where they can afford a higher mortgage payment might choose to do this in order to own the home outright sooner and to pay less in interest.

To Lengthen Your Mortgage Term

You can also lengthen the length of your mortgage through refinancing. This is a way of lowering mortgage payments if it would be better for your finances to direct some of that money elsewhere in your budget.

To Lower Your Interest Rate

It's possible that interest rates are better now than when you got your mortgage, as interest rates are constantly changing. When you're able to acquire a lower interest rate, it means you can pay less interest overall as well as lower how much you pay each month.

In Order to Settle a Divorce, Separation, of Dissolution of a Domestic Partnership

When relationships come to an end, sometimes it means determining how to divide up a property after a divorce or separation. One of the ways to move forward in this situation is through refinancing.

Other couples might choose to sell the house and divide up any profits they make. Sometimes one person might buy out the other party, though it is also possible in some instances to roll a buyout into a refinance.

If you choose to sell your home, you might be wondering if there are other options than listing it on the open market. One of the easiest and fastest ways to sell a property is by selling it to an all-cash buyer. You can check here to see if their are iBuyers in your city.

To Get Cash Out From Your Equity

While some people might refinance their home to impact the amount of interest they pay, the length of their loan, or their monthly payments, others do so in order to acquire a loan.

It is possible to refinance in order to borrow more money than you owe on your loan. You will have higher monthly payments, but you also get to keep the difference in cash. People might get a cash-out refinance in order to do a repair or an upgrade, to pay off outstanding debts, or for other reasons.

Because the interest rate on home mortgages is typically lower than that of other loans or credit cards, homeowners might take cash out from their equity to pay off other debts that have higher interest rates. Though they're increasing their monthly payments, they are decreasing the amount of interest they pay overtime on their debts in total.

To Change the Type of Loan

There are a number of reasons someone might want to change their type of loan. One common one is in order to avoid paying any more private mortgage insurance.

You can cancel private mortgage insurance on conventional home loans once you have a certain amount of equity. However, you often can't cancel the PMI on FHA loans.

If you want to get rid of your PMI and you have an FHA loan, you can either refinance once you have enough equity or you can sell the house. You can estimate your home equity by taking an estimate of your home value and subtracting the balance on your mortgage.

Should You Refinance a Mortgage or Sell Your Home?

If you know the type of loan you have on your recently purchased home, you can determine what qualifies you for refinancing and how soon. Know that you know the answer to "how soon can you refinance a mortgage?" you can determine whether or not it makes the most sense for you.

If you purchased a house before interest rates decreased so intensely, refinancing might be on your mind. After all, why pay more in interest over time than you have to?

At the same time, rising home prices might leave you wondering if you should sell your home and take your profits to buy a property you find more suitable. This is the type of question only you can answer, and it depends on what your future plans are, what your goals are, and your financial and family situation.

If you're thinking about selling your home, you might be happy to know that home selling doesn't have to be an incredibly stressful event that rules your life for months on end. With iBuyers, you can sell your home without making repairs or dealing with showings. This means that you can avoid some of the major causes of headaches that crop up when you're selling your house.

Are you wondering how much you could sell your home for? Check out our home valuation tool here!

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