How Soon Can You Refinance a Home Mortgage?

So, you just bought a home. Congratulations! Many homeowners get a mortgage and leave it untouched for years or even for the life of the loan. However, there are situations where the person may want to refinance their home mortgage sooner than later. What are the rules? How soon can you refinance your mortgage?

If you have had your mortgage for a while or have built equity in your home, you might be considering refinancing. Home refinancing involves taking out a new home loan to pay off the existing one, often to secure financial benefits like a lower interest rate.

How soon you can refinance depends on your current mortgage type and the type of refinance you’re seeking. Discover more about when you can refinance a mortgage and how to determine if now is the right time.

Below is what you need to know. BD Nationwide will match you with experienced loan professionals if you think it’s time to refinance your home mortgage.

When Can You Refinance Your Home Mortgage?

Refinancing a mortgage can be a strategic financial move, allowing homeowners to secure lower interest rates, reduce monthly payments, or tap into home equity.

However, understanding when you can refinance is crucial to maximizing the benefits and avoiding potential pitfalls.

In most cases, you can refinance a conventional loan as soon as you like. However, you might need to wait six months before refinancing with the same lender, though this doesn’t prevent you from refinancing with a different lender.

This article explores the timeline for refinancing a mortgage, factors influencing the timing, and tips to ensure a smooth refinancing process.

Before rushing into refinancing your existing mortgage it is important to make sure the benefits outweigh the risks.

Understanding Home Refinancing

Refinancing a mortgage involves replacing your current home loan with a new one, ideally with better terms. Homeowners typically refinance to:

• Lower their interest rate.
• Reduce their monthly payments.
• Switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.
• Shorten the loan term.
• Access home equity for home improvements, debt consolidation, or other financial needs.
• Leverage equity with a cash out refinance.

Factors Influencing the Timing of Home Refinancing

Several factors can influence when you should refinance your mortgage:

1. Interest Rates: One of the primary reasons to refinance is to secure a lower interest rate. Keep an eye on market trends and consider refinancing when rates drop significantly.
2. Credit Score: Your credit score plays a crucial role in determining your eligibility for refinancing and the interest rate you’ll receive. Ensure your credit score is in good shape before applying for a refinance.
3. Home Equity: The amount of equity you have in your home can affect your refinancing options. Mortgage lenders typically require at least 20% equity for a conventional refinance.  Many borrowers like to refinance a 2nd mortgage into a new 1st mortgage. If you have less equity, you may still qualify for government-backed loans like FHA or VA refinancing.
4. Loan Terms: Consider your current loan terms and how they compare to potential new terms. Refinancing to a shorter term can save you money on interest over the life of the loan, while extending the term can reduce your monthly payment.
5. Closing Costs: Refinancing involves closing costs, which can range from 2% to 5% of the loan amount. Calculate the break-even point to determine if refinancing makes financial sense. The break-even point is the time it takes for the savings from a lower monthly payment to exceed the closing costs.
6. Life Changes: Major life events, such as a new job, marriage, or significant increase in income, can influence your decision to refinance. These changes might improve your financial situation, making refinancing more beneficial.

Why Would You Want to Refinance a Home Mortgage So Soon?

Why would you want to refinance a home loan not long after taking it out? Many homeowners want to refinance if the rates drop so they can save money. However, other common scenarios are wanting to refinance into a 15-year or 30-year loan or switch from an adjustable rate mortgage into a fixed rate mortgage.

A cash out refinance loan involves borrowing more than your remaining mortgage balance and receiving the extra amount in cash. To qualify for a cash out refinance on a conventional mortgage, you must have owned the home for at least 12 months, unless you inherited the property or were awarded it in a divorce, separation, or dissolution of a domestic partnership. Many borrowers in 2024 have been waiting for interest rates to drop before committing to a cash out refinance mortgage with a new lender.

When You Can Refinance a Conventional Home Mortgage

Generally, you can refinance a Fannie Mae or Freddie Mac-conforming mortgage as soon as you like. However, some lenders may mandate that you wait at least six months before refinancing with that lender. But that doesn’t necessarily prevent you from refinancing a conventional mortgage with another lender.

However, there is an exception: cash-out refinances. This type of mortgage loan is where the borrower borrows more than what is remaining on the loan and get the extra money in cash. A conventional cash-out refinance generally requires the borrower to hold the loan for at least a year before refinancing. Exceptions with a conventional loan are if the home was inherited or you received the property after divorce. In most cases, the interest rates on conventional loans are superior.

When You Can Refinance an FHA Home Mortgage

If your loan is backed by the Federal Housing Administration or FHA, the rules for refinancing FHA loans are different, so let’s dive into it:

• Rate and term or simple refinance: If you want to refinance an FHA loan into another FHA loan without taking out equity, this is a simple refinance. If you want to refinance another home loan into an FHA product, this is a rate and term refinance. In either case, you generally do not need to wait to refinance the loan, unless your home lender has a seasoning requirement. Many FHA lenders require the loan for six months before refinancing, if all payments were made on time. If the loan has been held longer than six months, any payments due in the last six months must have been paid on time. There is also a FHA cash out refi plan to consider if you have at least 15% equity in your home. Talk to a lending pro about cash out refinance requirements before you get too excited.
• FHA streamline refinance: This program allow you to more easily refinance an FHA loan into another. The loan must have been held for at least 210 days with at least six payments made. The payments for the last six months must have been on time. BD Nationwide will connect you with banks and lenders that understand everything you need to know about FHA loans.

When You Can Refinance a VA Mortgage Loan

You must wait at least six months to refinance into a VA loan. You also must wait at least 210 days on VA loans after making the initial loan payment, or made at least six payments, whichever period is longer. This VA refinance rule is in place whether it is a VA cash-out refi or a VA Interest Rate Reduction Refinance Loan (VA streamline refinance). BD Nationwide will help you get up to speed on the rules and guidelines for refinancing VA loans.

 When You Can Refinance a USDA Mortgage Loan

The USDA has two mortgage loan programs: guaranteed and direct USDA loans. If you ant a non-streamlined or streamlined refi, you need to have made USDA home loan payments on time for the last six months. For the streamlined assist refi program, you must have made the last 12 payments on USDA loans payments on time. In some cases refinancing USDA loans makes sense.

Steps to Refinance a Mortgage

Once you’ve determined that refinancing is a viable option, follow these steps to ensure a smooth process:

1. Evaluate Your Financial Situation: Review your credit score, income, and current mortgage terms. Determine your goals for refinancing, such as lowering your interest rate, reducing monthly payments, or accessing home equity.
2. Research Lenders: Shop around and compare offers from multiple lenders. Look for competitive interest rates, favorable loan terms, and reasonable closing costs. Consider both traditional banks and online lenders.
3. Gather Documentation: Prepare the necessary documents for your refinance application. These typically include recent pay stubs, tax returns, bank statements, and information about your current mortgage.
4. Submit Your Application: Apply with your chosen lender and provide the required documentation. Be prepared for the lender to conduct a credit check and verify your financial information.
5. Appraisal and Underwriting: The lender will order a home appraisal to determine the current value of your property. During underwriting, the lender reviews your application and assesses your creditworthiness.
6. Closing: If your application is approved, the lender will schedule a closing. Review the final loan terms and closing costs before signing the paperwork. Once the new loan is finalized, it will pay off your existing mortgage.

More Successful Home Refinance Tips

To ensure a successful home refinancing process, consider these tips:

1. Maintain Good Credit: Keep your credit score high by paying bills on time, reducing debt, and avoiding new credit inquiries.
2. Save for Closing Costs: Set aside funds to cover closing costs, which can be substantial. Some lenders offer no-closing-cost refinance options, but these often come with higher interest rates.
3. Monitor Interest Rates: Stay informed about current mortgage rates and refinance when rates are favorable.
4. Avoid Major Financial Changes: Avoid significant financial changes, such as switching jobs or taking on new debt, during the refinancing process. These changes can impact your loan approval.
5. Review Loan Terms Carefully: Understand the terms of your new loan, including the interest rate, monthly payments, and any fees. Ensure the new terms align with your financial goals.

What About a 40-Year Mortgage?

Conventional lenders do not offer a 40 year mortgage loan program. If you need a lower monthly payment, a 40-year mortgage can help, but it will result in significantly higher interest payments over time. If you aim for lower overall costs by the end of your loan term, a shorter-term loan is a better option.

Summary of When You Can Refinance a Mortgage

Refinancing a mortgage can offer significant financial benefits, but timing is crucial. While you can technically refinance soon after obtaining a new mortgage, it’s often advisable to wait at least six months to stabilize your credit and build a payment history. Consider factors such as interest rates, credit score, home equity, and closing costs when deciding to refinance. By following the steps outlined in this article and staying informed, you can navigate the refinancing process successfully and achieve your financial goals.

Every major type of mortgage loan has various rules for when you can refinance after taking out the loan. If you have follow-up questions, one of our lending professionals can offer more details. BD Nationwide can help you get matched with trusted lenders that offer the best home refinance loans.