With fluctuations in home financing rates, you might be wondering if it's the right time to refinance your mortgage. But if you’ve just recently gone through the financing or refinancing process, you may also wonder if it’s too soon to go through the process again.
Making things just a little more complicated are the opportunities to switch to a different kind of mortgage, such as going from a fixed to an adjustable rate, or from a 30-year to a 1-year term.
One thing is certain, the decision to refinance or not, and the timing of the decision, can have serious consequences for both your short-term and long-term financial health.
The Pros and Cons of Refinancing
For lots of homeowners, refinancing is an opportunity to get a lower rate, tap into home equity, and much more. However, several factors play into refinancing your home, and it’s important to fully understand the process, and evaluate if refinancing is right for you. The time period allowed before you can refinance, is just one of those factors.
How Soon Can I Refinance?
The time period allowed to refinance depends on your current loan terms and the type of refinancing you choose next. Generally speaking, while some conventional loans allow for immediate refinancing, you’re looking at anywhere from 6 to 24 months.
Eligibility and Timing for Different Loan Types
Following are the basic guidelines but it’s important to dig a little deeper to show all the scenarios.
- Conventional Loans: Immediate for rate-and-term refinances; six months for cash-out refinances
- FHA Loans: Seven months for streamline refinances; one year for cash-out refinances
- VA Loans: 210 days or after six payments for all refinances
- USDA Loans: One year for all refinances
- Jumbo Loans: Varies by investor; sometimes immediate
Following are some what ifs within each loan type:
Conventional Loans
If you have a conventional mortgage backed by Fannie Mae or Freddie Mac, you might be able to refinance immediately after closing your home purchase or a previous refinance. However, it’s important to note that many lenders have a six-month “seasoning period” before allowing a current borrower to refinance with the same company.
If you want to refinance with your current lender, you’ll likely have to wait until the seasoning requirement has passed. However, you can often circumvent this waiting period by shopping around and refinancing with a different lender.
Conventional Cash-Out Refinance
If you’re considering a conventional cash-out refinance, you typically need to wait at least six months from the date of your original mortgage closing before refinancing, regardless of the type of mortgage you have. Additionally, most lenders require that you leave at least 20% equity in your home after the cash-out refinance.
If your primary goal is to access cash and not necessarily to lower your interest rate or change your loan term, alternative options such as a home equity loan or home equity line of credit (HELOC) may be less expensive than the closing costs associated with a cash-out refinance. These options allow you to borrow against your home’s equity without refinancing your entire mortgage.
FHA Loan
The waiting period for refinancing an FHA (The Federal Housing Administration) loan ranges from 210 days to 12 months, depending on the type of refinance you choose and your current mortgage situation. The FHA offers three main refinancing options, each with its own seasoning period requirement:
- FHA Streamline Refinance: To be eligible for an FHA Streamline Refinance, you must have had your current FHA mortgage for at least 210 days (approximately 7 months) and made at least six on-time monthly payments. This option offers a faster way to lower your interest rate with fewer requirements.
- FHA rate-and-term refinance: If you want to change your loan’s interest rate, the loan term, or both, you can opt for an FHA rate-and-term refinance. To qualify, you must wait at least six months from the date of your original mortgage closing and have a recent history of on-time mortgage payments.
- FHA cash-out refinance: If you’re looking to tap into your home equity, you can apply for an FHA cash-out refinance. To be eligible, you must have owned your home for at least 12 months if it’s your primary residence. If you have an existing mortgage, you must have had it for at least six months before applying for an FHA cash-out refinance, and all mortgage payments in the last year must have been made on time. However, if you own your home outright, there is no waiting period for a cash-out refinance.
VA Loan
If you have a VA (The Department of Veterans Affairs) loan, you must wait at least 210 days from the date of your original VA loan closing or have made at least six on-time payments, whichever comes later, before refinancing.
The VA offers two primary refinancing options for eligible veterans, service members, and surviving spouses:
- The VA cash-out refinance allows you to refinance your conventional or VA loan into a new VA loan while extracting cash from your home’s equity.
- The VA IRRRL is a simple process for those who already have a VA loan and want to lower their interest rate without the need for an appraisal, income verification, or a new certificate of eligibility.
USDA Loan
If you have a USDA loan, you must have made on-time payments for the previous 12 months before being eligible to refinance through the United States Department of Agriculture’s (USDA) streamlined refinance program.
To qualify for a USDA streamlined refinance, the new interest rate must be at least 1% lower than the original interest rate on your existing USDA loan, and the refinance must result in a net tangible benefit, such as a lower monthly payment.
Jumbo Loan
If you have a jumbo loan, also known as a non-conforming loan, you may be able to refinance without having to wait, as these loans are not regulated by Fannie Mae and Freddie Mac. However, the specific waiting period and eligibility requirements for refinancing a jumbo loan are subject to individual refinance lender policies.
Jumbo loans exceed Fannie Mae and Freddie Mac conforming loan limits and have more rigorous standards because they are not federally guaranteed. To determine if you can refinance your jumbo loan and how soon you can do so, it’s best to speak with your loan officer.
Remember, given the variable nature of mortgage interest rates, it's wise to explore your refinancing options periodically.
First, understand the basics of refinancing and why it could be the right time for you. How much will you pay in fees and how much savings are you getting to offset those fees? Can you now afford to move into a 15-year mortgage and what are those long-term savings? What are you potentially giving up in short-term lifestyle needs versus what you gain in long-term financial health?
It’s never a bad idea to talk to a mortgage professional to understand your options, as well as a trusted financial advisor to fully understand the short and long term financial consequences of this important decision.
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