How Soon Can You Refinance a Mortgage?
Have questions about refinancing your mortgage? We’ve got all the answers you need for whatever kind of home loan you have.
Written by Natalie Todoroff
Reviewed by Melanie Reiff
How quickly you can refinance your mortgage depends on the type of mortgage you have, the type of refinance you want, and your lender’s specific requirements. Although most conventional loans allow you to do so at any time, many government-backed loans require seven months to a year’s worth of payments before refinancing.
Refinancing your mortgage can be a smart choice for many homeowners: you could lower your interest rate, ax your monthly payments, and (in some cases) even help you pay off your loan faster. With all of these benefits, you’re probably wondering,“just how soon can I refinance my mortgage?”
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When can you refinance a mortgage?
Many lenders mandate that you wait a certain period before you’re eligible to refinance. In the mortgage business, this is known as a seasoning period. During this time, you must be living in the home you initially took out the mortgage for and be making your payments on time.
The timeline for refinancing is different depending on the type of refinance you’re hoping to achieve. In general, there are two main kinds of mortgage refinances: rate-and-term and cash-out.
As its name implies, rate-and-term refinancing will change your interest rate and the term of your mortgage loan. Cash-out refinancing replaces your current mortgage with a larger one. With cash-out refinancing, you’ll be paid in cash the difference between the amount you borrowed and what you still owe on the home—hence the name.
Now that we’ve got our feet wet, let’s dive into the specifics of the different kinds of mortgages: conventional loans, FHA loans, VA loans, USDA loans, and jumbo loans.
Conventional loans
First up: conventional loans. These kinds of mortgages are from a private lender—not a government agency like many others on the list. Most commonly, this private lender is a bank.
If you want rate-and-term refinancing, you’re in luck. Unless your mortgage stipulates that there is a seasoning period, you may begin the process of rate-and-term refinancing whenever you like.
But in the rare instance that your conventional loan does require a seasoning period, it will likely be around six months.
Cash-out refinancing is a different story. For conventional home loans, you must wait at least six months before you’re able to begin the cash-out refinancing process.
FHA loans
FHA Loans are backed by the Federal Housing Agency. They’re a little different from conventional loans because there are three (as opposed to just two) ways to refinance: rate-and-term, cash-out, and streamline.
For rate-and-term refinancing, you must wait at least seven months, and all payments within the past six months must have been made on time. Additionally, you may have a maximum of one late mortgage payment in the six months prior to that.
And, because you received your loan through a government agency, there are a couple of more bureaucratic hoops to jump through. In order to apply for a rate-and-term refinancing, you must also pay for an appraisal.
Like rate-and-term refinancing, cash-out refinancing for an FHA mortgage also requires the borrower to get an appraisal. To qualify, you must first live in your home for at least 12 months and have made your last 12 months’ worth of mortgage payments on time.
Unlike the other two, streamline refinancing is only available for government-backed loans and does not require an appraisal, which helps expedite the refinancing process. If you want this kind of refinancing, you’ll have to have made six monthly payments and had your mortgage for a minimum of 210 days (about seven months).
VA loans
VA loans are another kind of government-backed mortgage, but these ones are from the Department of Veterans Affairs. To refinance your VA loan, you’ll have to have made at least six consecutive monthly mortgage payments or have lived in your home for a minimum of 210 days—whichever period is longer.
With a VA loan, you can apply for cash-out refinancing or special interest rate reduction refinance loans (IRRRL). Regardless of which one you’re hoping for, the same waiting period applies for both.
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USDA loans
Last on the list of government loans are USDA loans, which are backed by the United States Department of Agriculture. Cash-out refinancing is not available for any USDA-backed loans.
Before you can apply for any kind of refinancing with a USDA home loan, you’ll have to have made a minimum of 12 consecutive monthly mortgage payments.
Jumbo loans
Jumbo loans are most similar to conventional loans, but they’re called “jumbo” because they exceed the loan limits in your area. Although there may be some lender-specific seasoning periods, in general, you can refinance a jumbo loan at any time.
Pro Tip No matter the kind of loan you’ve got to the kind of refinancing you’re applying for, sooner is always better. The earlier you’re able to look into and get whatever necessary paperwork together, the more seamless the refinancing process will be.
Why should you refinance your mortgage?
With some timelines for refinancing edging close to the one-year mark, you may be wondering if it’s worth the wait to refinance. But, doing so can offer a boatload of financial benefits! Here are just a few:
- Shorten your loan’s payment period. Instead of being locked into a 30-year mortgage, with the right refinancing plan, you ax it to just 15.
- Tap into your home’s equity. With home prices on the rise, there’s no better time to consider a cash-out refinance to get your piece of the pie.
- Change your interest rate. If you’ve got an adjustable-rate mortgage and are weary of rising mortgage payments, refinancing to a fixed-rate mortgage can help give your budget some much-needed stability.
It’s convenient to refinance your mortgage if you’ve recently improved your credit score because you’ll snag a better interest rate. Or, if you’re going through a divorce, refinancing your mortgage is a convenient way to remove your ex-spouse’s name from your mortgage.
How to refinance your mortgage
Refinancing does certainly come with a myriad of benefits—but it’s really something you want to pursue, you’ll have to be prepared for some legwork. Before you begin, make sure you have a clear goal in mind, whether that’s shortening the term of your loan, lowering your monthly payments, getting a better interest rate, etc.
Next, shop around for different rates and get estimates from new potential lenders. Now is also a good time to do the math and see if a refinance makes financial sense for you. Crunch the numbers and see if the fees associated with a refinance will make it worthwhile to pursue.
You should apply to about three to five different lenders—and take special care to do so in a two-week time period so you don’t lower your credit score.Now would also be the time to get an appraisal, if your lender requires it.
Once you receive your Loan Estimates from each lender, make sure to lock in your new interest rate before the rate lock expires. And lastly, it’ll be time to close on your new loan and pay those closing fees.
MORE: Reverse mortgage pros and cons: a quick overview
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