How Soon Can I Refinance My Mortgage?

How Soon Can I Refinance My Mortgage?

You can refinance your mortgage in as little as 30 days with most conventional mortgages. Some government-backed mortgages have "seasoning" requirements, meaning you must hold the loans for periods ranging from seven to 12 months before refinancing.

Exceptions that shorten these requirements may apply. Individual lenders may impose their own requirements, so check your loan contract and consult your loan servicer to clarify the specifics of your situation.

In addition to restrictions specific to your mortgage contract, some special cases also impose delays before you can begin a refinance.

Learn more: How Does Refinancing a Mortgage Work?

Cash-Out Refinance: 12 Months After Closing

A cash-out refinance combines a new mortgage with a cash loan backed by your home equity, which can be used for home improvement projects or any other purpose you choose. The vast majority of single family home loans issued in the U.S.—conforming loans with terms that make them eligible for purchase by government-sponsored enterprises Fannie Mae and Freddie Mac—require you to make at least 12 on-time payments before you can qualify for a cash-out refinance.

Modified Loan: 12 to 24 Months After Modification

If your lender has granted you hardship relief in the form of a mortgage modification, lowering your monthly payment amount or extending your repayment term, you typically must wait 12 to 24 months from the modification date before seeking to refinance.

FHA Streamline Refinance: 7 Months After Closing

If you have a mortgage backed by the Federal Housing Administration (FHA), commonly referred to as an FHA loan, you may apply for a streamline refinance from an FHA-approved lender seven months (210 days) after closing on the original loan.

FHA streamline refinances carry the same fees and other closing costs as other FHA loans but waive requirements for proof of income and other financial documentation.

Reasons to Refinance Soon After Buying a House

Refinancing soon after obtaining your original mortgage can serve any of several purposes:

Get a Better Interest Rate

If you bought your house when mortgage rates were high, refinancing when rates are lower could reduce the total amount you'll pay over the life of the loan. Additionally, if your debt-to-income ratio (DTI) or credit score has improved significantly since you took out your loan, you might qualify for better overall terms from your lender.

Convert From an ARM to a Fixed-Rate Loan

If your current loan is an adjustable-rate mortgage (ARM), refinancing to a loan with a fixed interest rate could save money and make your financial life more predictable.

Learn more: Pros and Cons of an Adjustable-Rate Mortgage

Reduce Monthly Payments

If your current mortgage payment is stretching your budget, refinancing to a new loan with a longer repayment term could lower your monthly payment. It will also likely increase the total cost of the house by increasing the amount you'll pay over time in interest.

Get Rid of Mortgage Insurance

Conventional mortgages typically require private mortgage insurance (PMI) if you put down less than 20% of the loan amount at closing, and some government-backed loans require a monthly mortgage insurance premium unless you make a down payment of at least 10%.

If your home's market value has increased quickly, or you gain the means to put more down on a new mortgage, refinancing without the burden of mortgage insurance could save you money.

If you replace an existing FHA loan less than three years old with a new one, via the FHA streamline refinance process, you must still pay mortgage insurance on the new loan, but you can get a partial refund on the original loan's upfront mortgage insurance premium.

Get Cash

A cash-out refinance combines a new mortgage with a home equity loan, which you can use for any purpose you choose. Your home equity typically must be greater than 20% for you to qualify for a cash-out refinance, so unless you made a hefty down payment on your original loan or your home's market value has risen very quickly, you may not have sufficient equity for a cash-out loan within the first few years of your loan.

Learn more: Pros and Cons of a Cash-Out Refinance

Add or Remove a Co-Borrower

If you got your mortgage based on your own credit and income, and wish to reapply with a co-borrower (such as spouse), refinancing is the way to do it. Doing this could mean better borrowing terms, since both of your incomes will be considered with the application.

On the other hand, if you obtained your current mortgage with a co-borrower and wish to have the other party removed from the loan (in the case of a divorce, for example), refinancing under your own name or with a different co-borrower can accomplish that.

Pros and Cons of Refinancing

Before refinancing your mortgage, it pays to consider the potential benefits and drawbacks of doing so.

Is Refinancing Worth It?

Whether or not refinancing is worth it depends on your specific circumstances and future plans.

When refinancing may be worthwhile:

• You plan to live in the home for a long time.
• You have an adjustable-rate mortgage.
• You are struggling to make your mortgage payments.
• Your credit has improved and may qualify you for a lower interest rate.
• You want to get cash out of your home.

When refinancing may not be worthwhile:

• You already have a low interest rate.
• Interest rates have increased since you took out your loan.
• You plan to move out of the home in the near future.
• Your credit hasn't changed or it has decreased since you got your mortgage.
• You already have a fixed-rate mortgage.
• You're comfortably making your mortgage payments.

How Refinancing Affects Your Credit Score

Refinancing your mortgage could have a range of impacts on your credit, from a very small impact to a potentially large impact. Here are some ways your credit can be affected by refinancing your mortgage:

• Hard inquiry: Most refinances require a hard inquiry into your credit. While a single hard inquiry may only decrease your credit score temporarily by a few points, applying for a new loan shortly after taking out your original mortgage could have a compounding negative impact.
• Reduced length of credit history: Adding a new loan to your credit profile reduces the average age of your credit accounts. By closing your original mortgage, you lose any length of credit history that you've built and replaced it with a new loan.
• Increase in overall debt: Taking out a cash-out refinance means adding additional debt to your debt load. This increases your amounts owed which can also negatively impact your debt-to-income ratio, for example.
• Potential for missed payments: If you miss a payment on your old mortgage during the refinancing process, your credit score could drop.

The Bottom Line

Depending on when you bought your house during the interest ups and downs of recent years, refinancing your mortgage at a lower interest rate, or converting an adjustable-rate loan to one with a fixed interest rate, could save you a substantial amount over the life of your loan. Do the math to understand your potential savings, keeping in mind the closing costs on the new loan. Before you apply for a refinance (or any new credit), checking your FICO^® Score^☉ for free from Experian can help you know where you stand.