Refinancing can allow you to change your mortgage loan’s terms, payment, or interest rate — and often, it requires strategic timing to get it right. But what if your loan is fairly new? Can you still refinance and take advantage of lower rates if they come around? It’s certainly possible — but it depends on the type of mortgage loan you have, as well as your lender’s requirements. Here’s what to know if you’re considering refinancing soon.
Refinancing your mortgage could potentially save you a good chunk of change over the life of the loan. However, not every mortgage lender or type of loan allows you to refinance right away. And in some cases, there may even be a waiting period (also called “seasoning”) of up to a year.
Here are the various waiting requirements by mortgage loan type:
Some mortgage lenders will have their own requirements for how soon you can refinance your mortgage after buying the home, so always check with your lender before considering a refinance.
Depending on your financial goals and the type of mortgage loan you have, you can refinance your loan in various ways. But before you start the process, make sure you understand the rules associated with each.
When you take out a rate-and-term refinance on a conforming loan — a conventional mortgage with terms and conditions that meet Fannie Mae’s and Freddie Mac’s guarantee criteria — you pay off your existing conforming loan and replace it with a new one.
As mentioned above, there is no legal minimum timeframe between closing on your last conforming mortgage and refinancing into a new loan. However, some lenders impose a six-month or even one-year waiting period before you can refinance after taking out a mortgage with them. If this is the case with your lender, you could get around this rule by choosing a different mortgage refinance lender. (You should be considering multiple lenders anyway, as rates and terms can vary widely from one company to the next.)
Jumbo loans are another type of conventional loan, but they’re non-conforming loans, which means they exceed Fannie Mae and Freddie Mac’s conforming loan borrowing limits and do not need to adhere to any requirements set out by outside parties (the lender makes their own rules).
Though jumbo loan lenders don’t have a set waiting period for refinancing, these loans are harder to qualify for than other types of mortgages, as they come at a higher risk for lenders. You’ll need a good credit score, a low debt-to-income ratio, and plenty of cash reserves to make it happen.
With a cash-out refinance, you tap into your home equity by taking out a new mortgage for more than you owe on the first one and receive the difference in cash. You typically need to wait at least six to 12 months (depending on the mortgage type and lender) and have built up 20% equity in your home before you can do a cash-out refinance.
To qualify for both the FHA Simple Refinance and the FHA Streamline Refinance program, you must already have made at least six payments on your existing FHA loan. Your loan must be in good standing, and at least 210 days must have passed since the closing date.
The difference between these two programs is that the FHA Streamline Refinance program requires that borrowers receive a “net tangible benefit” from refinancing. That “benefit” usually translates to either a lower interest rate or monthly payment. There’s no “net tangible benefit” requirement for an FHA Simple Refinance.
An FHA cash-out refinance requires a 12-month waiting period.
The VA Interest Rate Reduction Refinance Loan (IRRRL) program, also known as a VA streamline refinance, allows you to refinance your existing VA loan as long as it helps you financially, like locking in a lower interest rate. To qualify, you’ll have to wait until 210 days after making your first payment on your existing mortgage.
VA cash-out refinances also require at least 210 days of seasoning.
For USDA loans, you’ll need to wait at least 180 days to refinance your loan. This goes for streamlined, streamlined assist, and non-streamlined refinances. For streamlined assist loans, there must be a net tangible benefit of $50 or greater in the monthly payment.
Refinancing your mortgage may not always be the smartest move, especially if the costs outweigh the benefits. But here are a few scenarios when it might make sense to refinance your mortgage:
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Your home value has gone up. If you need cash to pay for big-ticket items and your home value has increased since you first took out your original loan, a cash-out refinance can make financial sense — especially if you can get a better interest rate on the new loan.
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You want to convert to a fixed-rate mortgage. Refinancing into a fixed-rate mortgage could offer some peace of mind if you have an adjustable-rate mortgage but are worried about future interest rate hikes.
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Your credit score has improved. Typically, the better your credit score, the better mortgage rates you can qualify for. Use the myFICO Loan Savings Calculator to see how much you could save by refinancing your mortgage with a higher FICO score.
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Mortgage rates have gone down. If current rates are lower than when you bought your home, a mortgage refinance could save you money on interest and lower your monthly payments. No matter the latest rates, though, always check that the math works out in your favor using a mortgage calculator.
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You want a shorter loan term. Refinancing to a shorter loan term can be a solid idea if you want to pay off your mortgage faster. But remember, shorter loan terms mean higher monthly payments, so make sure you can afford them.
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You can get rid of private mortgage insurance (PMI). You may be paying for PMI if you put less than 20% down on your original mortgage. If you have an FHA loan, refinancing into a conventional one can also help you avoid the mortgage insurance premiums that FHA loans come with. Refinancing is just one way to get rid of PMI and lower your monthly payments.
If you come into a large chunk of money, you might also want to explore a cash-in refinance. This will allow you to put those newfound funds toward your home, and then re-amortize your smaller loan across a new term. This can lower your payments and reduce your long-term interest costs.
Because refinancing comes with closing costs, you should always calculate the break-even point before deciding to refinance your loan. This is the point at which your refinance will save you more than it cost up front.
For example, if your estimated closing costs on a refinance are $5,000, and the refinance will save you $100 per month, your break-even point would be 50 (5,000 divided by 100). This means that you will break even on the refinance 50 months after closing.
Do you plan to still be in the home by the time you hit your break-even point? If so, it might be a smart strategy to pursue. If you don’t, then refinancing may not be the best move for your money.
While some lenders let you do a rate-and-term refinance immediately, it’s more common for lenders to refinance a mortgage after you’ve had the loan for six to 12 months. If you’re looking to do a cash-out refinance, you’ll need to wait six to 12 months and have at least 20% equity in your home.
For a VA IRRRL (aka Streamline Refinance) or VA cash-out refinance, you’ll need to wait at least 210 days since you closed on your original loan.
To do a cash-out refinance, you’ll typically need at least 20% equity in your home. However, if you’re just doing a rate-and-term refinance and aren’t looking to take money out, you generally won’t need to meet any strict equity requirements.
The 2% rule states that you should only refinance your mortgage if you can reduce your rate by two percentage points. Many borrowers can benefit from much smaller reductions, though, so make sure you do the calculations and consider your personal goals before deciding when to refinance.
Laura Grace Tarpley edited this article.
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