How Soon Can You Refinance Your House

With mortgage rates near-record lows, many homeowners might be asking themselves: Is it too soon for me to refinance? 

Refinancing your mortgage is an excellent way to lower your interest rate and save money on your monthly payment. In fact, the fourth quarter of 2020 broke a record from nearly two decades ago for refinance volume in a single quarter.

When it comes to how soon you can refinance your mortgage, though, it depends on the type of loan you have. 

Conventional Loan Refinance Rules

In general, there’s no required amount of time you must wait before refinancing your conventional mortgage. Theoretically, you could refinance immediately after purchasing your home. However, some lenders may prohibit borrowers from immediately refinancing under the same lender.

“Some mortgage lenders have a “seasoning” period, which is a fixed amount of time you must wait before you can refinance your home loan,” said Mark Ireland, senior loan originator at Waterstone Mortgage in Arizona. “If your mortgage lender has a seasoning requirement, you may be able to skirt it by applying with a different lender.” You’ll want to make sure your existing loan doesn’t have a prepayment penalty, Ireland said.”

The rules work slightly differently for cash-out refinances, which is when the borrower takes out a larger refinance loan to take out some of their equity in the form of cash. In this case, the borrower must have purchased the home at least six months before the new loan.

Also, remember that each lender has a loan-to-value (LTV) requirement, which refers to the maximum amount you can borrow compared to the value of the home. Even if you meet the time requirement for a cash-out refinance, you may still be ineligible if you don’t have enough equity built up in the home.

FHA Loan Refinance Rules

An FHA loan is backed by the Federal Housing Administration. It is designed to help low-to-moderate income borrowers buy a home with a lower down payment and credit score requirements than on a conventional mortgage.

The FHA offers several different refinance options, and the rules to qualify vary depending on the type of refinance you choose. 

• Cash-out FHA refinance: The borrower trades equity in their home for cash during their refinance. To qualify for a cash-out FHA refinance, a homeowner must own and occupy the residence for at least 12 months.

• Rate and term refinance: The borrower takes out a new loan with a new rate, term, or both while leaving the original principal intact. To be eligible, the original loan must exist for at least 12 months. For loans less than 12 months, borrowers are limited to 85% LTV. All payments in the past six months must have been on time, and you can only have one late payment in the previous six months.

• Simple refinance: The borrower refinances their existing FHA loan to a new FHA loan. To be eligible, you must have made at least six months of on-time monthly payments. If you’ve owned the home for longer than six months, you can have no more than one late payment in the previous six months.

• Streamline refinance: Allows FHA borrowers to refinance their mortgage without the typical requirements such as an appraisal and extensive paperwork. To be eligible for a streamline refinance, the borrower must have made at least six monthly payments and have had the mortgage at least 210 days. All payments within the past six months must be on time, and at least five of the six payments before that must have been on time.

VA Loan Refinance Rules

A VA loan is either originated by or guaranteed by the U.S. Department of Veterans Affairs to enable military service members or veterans to buy a home with no down payment. These loans often come with better terms and…