It doesn’t take long. Once you become a homeowner, they will start to appear in your mailbox. At first, it’s just a trickle, but the stream of offers to refinance your mortgage will likely grow as time passes. Even if you’re perfectly content with your current home loan, curiosity is a natural reaction in this situation. When does it mean to refinance? How soon can you refinance a mortgage? Why might you want to refinance?
How Soon Can You Refinance a Mortgage?
As Investopedia explains, when you refinance a mortgage, you replace your existing loan contract with a new one with better terms. Refinancing takes a bit of effort, but being aware of when you can refinance and knowing when it makes sense to do so can help you make smart financial moves.
When Refinancing Is an Option
How soon can you refinance a mortgage? That depends on the type of mortgage involved and the type of refinance that you’re planning. Some combinations will allow you to refinance almost instantly. Others will require that you wait for a period of time, which the industry refers to as seasoning. NerdWallet offers a breakdown:
- Conventional Loans: A conforming conventional loan can normally be refinanced immediately, although you may have to wait a bit if you want to use the same lender. Seeking a cash-out refinance for a newly purchased property might also force you to practice patience. Many lenders want to see that you’ve made at least six payments before they’ll approve a cash-out refinance.
- Jumbo Loans: These loans can typically be refinanced whenever you like. However, you should expect to face heavier scrutiny.
- VA Loans: If you’re hoping to refinance into a VA loan, be patient. You must wait a minimum of 210 days or long enough to make six payments, whichever is longer.
- USDA Loans: With a USDA direct loan, there’s no wait to refinance. However, you must have a USDA guaranteed loan at least one year before you’re eligible to refinance. If your goal is to refinance into another USDA loan, you’ll have three options. For either the streamlined refinance or non-streamlined refinance, your payments must have been made in a timely fashion during the past 180 days. If you opt for the streamlined assist refinance, your payments must have been current for the last year.
- FHA Loans: With an FHA Streamline, you must be going from one FHA loan to another FHA loan. You must have had the mortgage at least 210 days, and your last six monthly payments must have been made in a timely fashion. If you’re opting for an FHA cash-out refinance, then you must own and occupy the home for at least a year, and your payments during that time must have been made in a timely fashion. For those not interested in cashing out any equity, there’s also the FHA rate-and-term refinance. It’s available after seven months and six mortgage payments.
When Refinancing Can Be Wise
Just because you can do something, that doesn’t mean that you should. It takes time and money to refinance, so it’s best to pick your moment wisely. U.S. News & World Report offers some suggestions on when it can make sense to refinance:
- Interest rates drop dramatically. Scoring a substantially lower interest rate could save you thousands of dollars.
- Your income changes. Refinancing may be a way to lower your monthly mortgage payment.
- Your credit score improves significantly. A higher credit score could be enough to get a better interest rate.
- You want to change from an adjustable-rate mortgage. Fixed-rate mortgages offer more consistency.
- You want to access your equity. A cash-out refinance is one way to turn your home equity into cash.
- You need to remove a borrower. If a divorce or other life change means that you need to remove a borrower from the loan, refinancing is generally the best option.