When Can You Refinance Your Home?

Written by Banks Editorial Team
4 min. read
Written by Banks Editorial Team
4 min. read

Are you considering refinancing your current home loan? Whether it’s to get a better interest rate, a different loan term, change your loan type or tap into the equity of your home, you should first understand the refinancing guidelines by loan program. It’s equally important to assess your situation to determine if refinancing is the most sensible option or if you should hold off. 

Can You Refinance Your Mortgage at Any Time?

It depends on your loan type. Some loan programs are free of restrictions, which means you can refinance your home as soon as you close and the loan is funded. In other instances, though, you’ll have to wait for at least six months to refinance. 

Does Refinancing Impact Your Credit Scores?

Each time you apply for credit, the lender or creditor accesses a copy of your credit report. This is generally referred to as a hard inquiry and can drop your credit score by a few points. However, the impact is typically short-lived as hard inquiries are only factored into your credit score for 12 months and remain on your report for up to two years.

So, refinancing your home loan won’t cause much damage to your credit rating if you refrain from opening other new credit accounts or submitting several credit applications in a short period.

How Soon You Can Refinance By Loan Type

Conventional Loans

  • Conventional Mortgage: There’s no waiting period if you use a different lender to refinance your mortgage. However, refinancing with the same lender could require a six to 12-month waiting period.

VA Loans

  • VA Streamline Interest Rate Reduction Refinance Loan (IRRRL): There’s a six-month waiting period that begins on the day your first monthly payment is due. In some instances, lenders will also want to see 12 months of timely mortgage payments before considering you for a refinance.
  • VA Cash-Out Refinance: These loan products are subject to the same rules as VA Streamline IRRRLs.

FHA Loans

  • FHA Simple Refinancing: You’ll need to make six consecutive monthly payments on time to be eligible for refinancing.
  • FHA Streamline Refinancing: Like standard, FHA refinances, six timely payments are required. You’ll also have to wait an additional 210 days unless you’re planning to get a conventional loan instead.
  • FHA Cash-Out Refinance: You’re needed to occupy the home for at least 12 months before you’re eligible for this loan product.

USDA Loans

  • USDA Non-Streamlined: Borrowers must make 180 days of on-time payments to qualify for a USDA non-streamlined refinance loan.
  • USDA Streamlined-Assist: The timeline for consecutive, on-time payments increases to 12 months for USDA streamlined-assist refinance loans.

Jumbo Loans

  • Jumbo Loans: These loans follow the same refinancing guidelines as conventional loans. You generally aren’t required to wait for a set period to refinance unless you’re using the same lender that you currently have.

When It May Be a Good Idea to Refinance Your Home

You Can Get Better Interest Rates

If interest rates on home loans have improved since you took out your home loan, refinancing could make financial sense. It could also save you several thousand in interest over the loan term. And even if interest rates haven’t improved, a higher credit score could position you for better mortgage terms. 

You Want to Change Your Loan Terms

Refinancing also allows you to switch to a shorter or longer loan term. A shorter loan term makes sense if your monthly mortgage payments fit comfortably into your budget and you’d prefer to pay more each month to eliminate the balance faster. Plus, you’ll save a bundle in interest. But if you want a more affordable monthly payment that works for your budget, you can refinance to reset the loan term. (Keep in mind that a longer loan term also means you’ll pay more in interest over time). 

Some borrowers also refinance to switch from an adjustable-rate mortgage (ARM) to a conventional loan. ARMs come with fluctuating interest rates that make it challenging to predict the monthly mortgage payments. But with a conventional loan, the principal and interest payment is set for the entire loan term. 

You Want to Eliminate Mortgage Insurance

If your down payment was under 20 percent, it’s highly likely that you’re paying private mortgage insurance (PMI) each month. This form of coverage shields your lender from substantial financial losses if you default on the mortgage and remains intact until you reach 20 percent in equity. At that point, you can ask the lender to remove it and keep more of your hard-earned money in your pocket. 

The rules are slightly different for FHA loans, though. Mortgage insurance is required for the entire loan term, which could make switching to a conventional loan a wise financial decision. 

You Want to Tap into Your Home’s Equity

Cash-out refinances let you convert a portion of your home’s equity into cash. You’ll receive the amount you borrow shortly after closing, and your current loan will be replaced with a new one that includes your existing mortgage balance and the equity you took out.

The funds can be used how you see fit, and the borrowing costs are generally lower than you’ll find with several other debt products. 

When It May Not Be a Good Idea to Refinance Your Home

If You Plan on Moving

You’ll pay closing costs when you refinance, which could easily amount to several thousand. It may be a small price to pay for the benefits you’ll receive from refinancing your home loan, but you won’t be able to capitalize on these perks if you plan on relocating soon. 

If the Long-term Costs are Higher

It’s vital to calculate the long-term borrowing costs associated with refinancing. The lender can help you run the numbers to determine if a lower monthly payment provides more of a benefit than the interest you’ll pay over time. 

If You Can’t Make the Monthly Payments

Are you considering a shorter loan term to pay off your home faster? If it stretches your budget too thin, you may be better off sticking with your current mortgage to avoid defaulting on the loan and facing foreclosure. 

If You Don’t Have Enough Equity

Lenders require you to have a certain amount of equity in your home before they consider you for a refinance. So be sure to inquire before applying to avoid any surprises. 

How to Refinance Your Home

When you’re ready to refinance your home loan, the team of experts at Spring EQ, a full-service mortgage company, is available to lend a helping hand. You can choose from a rate and term refinance to get a lower interest rate, more affordable monthly payment, modify your loan term or switch mortgage products. Or you can get a cash-out refinance to convert a portion of your equity into cash.

Get started with Spring EQ today by visiting the website and using the simple form to get pre-qualified. It’ll only take a minute of your time, and a loan officer will reach out promptly to discuss your unique refinance needs, provide additional information or answer any questions you may have.

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