How Soon Can You Refinance a Mortgage?

Homeowners who want to refinance a new mortgage might first have to wait six months, a year, or longer. Other homeowners can refinance right away.

Whether, and how long, you’ll wait depends on why you’re waiting and who is requiring the wait.

Some loan programs will require the wait. Other times, the borrower’s finances or weak home equity position will cause the delay.

Refinance Wait Periods by Mortgage Type

Lenders call the waiting period before refinancing a “seasoning period” for the current loan.

“The seasoning requirement has a few purposes,” said Jason Lerner, D.C. area manager at First Home Mortgage. “The lender minimizes the risk of the new loan by allowing the borrower to demonstrate financial stability.”

Lerner said seasoning also protects borrowers “from having their equity eroded by refinancing too frequently and not recouping their closing costs.”

Seasoning rules vary by loan and loan type.

Conventional Loans

Fannie Mae and Freddie Mac, the government-sponsored enterprises that regulate most conventional loans, do not require new homeowners to wait before refinancing a conventional loan.

Individual lenders may still ask for a three-month or six-month wait, but homeowners can usually find a lender that doesn’t require any seasoning.

That said, many situations require waiting:

• Borrowers who want to cash out home equity with a cash-out refinance must wait a year before refinancing according to Fannie Mae. However, those simply reimbursing themselves for an all-cash purchase may be able to get cash from a refinance right away.

• Borrowers who used down payment assistance may need to wait. Active down payment loans — even those that require no monthly payments — may need to be paid off during a refi.

• Borrowers who made small down payments on their conventional loans — 3 percent for example — may not have enough equity to refinance, especially if their home’s value has not increased since closing on the home.

The good news about waiting: It creates extra time for equity to build, through home appreciation and through paying down the debt month after month. More equity creates more opportunities to save on a refi.

FHA Loans

The Federal Housing Administration insures several different types of refinances. Many will require new homeowners to wait before applying:

• FHA Simple and Rate-and-Term Refinances — No wait (usually): Simple refinances replace an existing FHA mortgage with a new FHA mortgage. Rate-and-term refinances replace another type of mortgage with a new FHA loan. The homeowner must have made all payments on time for as many months as the loan has been active, up to six. If the loan is over six months old, the borrower must have made the last six payments on time. If late payments appear on the file, the borrower will need to make six consecutive on-time payments before applying, according to the FHA 4000.1 handbook.

• FHA Streamline Refinance — 210 days: FHA Streamline works only for existing FHA borrowers, allowing them to improve their loan without going through the full underwriting process that a refinance would typically require. The FHA requires 210 days of waiting and six months of on-time payments before opening a new streamline refi. Check our full guide to FHA Streamline Refinance waiting periods here.

• FHA Cash-Out Refinance — 12 months: Homeowners must live in the home at least 12 months before applying for an FHA cash-out refi. Most lenders also look for 12 months of on-time payments.

• FHA Reverse Mortgage Refinance — 18 months: FHA’s popular Home Equity Conversion Mortgage (HECM), an FHA-insured reverse mortgage, requires 18 months of waiting before a refinance. Only homeowners age 62 and older can use this product.

The clock on FHA waiting periods starts on the current loan’s closing day.

Calculate your savings with an FHA Refinance Calculator.

VA Loans

The Department of Veterans Affairs insures VA loans to help veterans and active-duty military service members buy homes with lower interest rates and no down payments.

VA borrowers must wait 210 days before refinancing their VA loan. This seasoning rule applies to both types of VA refinances:

• VA IRRRL — 210 days: IRRRL is the VA’s Streamline Refinance program. Streamline loans typically do not need the full underwriting process. This loan refinances only an existing VA loan. The new loan must provide new benefits for the borrower — usually by locking a lower interest rate or creating a lower monthly payment

• VA Cash-Out Refinance — 210 days: Veterans with other types of loans can use the VA Cash-Out to refinance into the VA program and claim its benefits. This fully underwritten loan can also generate cash back from equity

The VA’s 210-day waiting period begins on the day of the current loan’s first payment.

USDA Loans

USDA requires a waiting period of 12 months before refinancing an existing USDA loan into a new USDA loan. The waiting period applies to Non-Streamlined, Streamlined, and Streamlined-Assist refinances. You must have a perfect payment history over the past 180 days (six months).

You can refinance a USDA loan into a conventional or FHA loan with no waiting period. However, most USDA borrowers won’t have enough equity to refinance within the first year unless they made a down payment or made major improvements.

Jumbo Loans

By design, Jumbo loans break the rules: They exceed the limits Fannie Mae and Freddie Mac set for conventional loans. Lenders won’t have to enforce external rules about seasoning a loan before refinancing it.

But Jumbo borrowers may still need to wait to refinance. Lenders face higher risks with Jumbo loans, so they usually need to see higher credit scores and more home equity before they can approve a refinance.

Jumbo refinance rules will vary by lender and borrower, but credit scores of 720 or higher are common. Many Jumbo lenders want borrowers to have large savings account balances — enough in savings to make the loan’s payment for a year, for example.

Jumbo borrowers who have paid down their loan balances may be able to refinance their home with a conventional loan instead of a Jumbo loan. If the new loan amount now falls within conforming loan limits, a conventional loan could offer a lower interest rate and an easier path to approval.

Cash-Out Refinance Wait Periods & Rules

Compared to Streamline or rate-and-term refinancing, cash-out refinancing usually needs more waiting:

• VA: 210 days

• Conventional and FHA: 12 months

• USDA: No cash-out loan available; borrowers can use other loan types

Exception: Those getting cash-back after an all-cash home purchase may be eligible to receive cash via the “delayed financing” rule.

These are minimum wait times; completing them won’t guarantee approval for a cash-out refi. Borrowers must also have the credit score and income to get approved and the home equity to back the loan.

Cash-out Refinance Equity Requirements

Most recent homebuyers won’t have enough equity for a cash-out refinance in the first year, rendering seasoning rules moot.

For example, you would need at least $100,000 in equity on a $400,000 home to make a cash-out refinance worthwhile. You need to leave 20% equity in the property for a cash-out refinance, which is $80,000 in this case. This would yield $20,000 less closing costs.

Unless you made a very large down payment or bought a home that appreciated rapidly, a cash-out refinance is likely not an option within the typical 12-month waiting period.

VA Cash-out Refinances

VA-eligible borrowers can get approved for bigger cash-out loans. In fact, VA lenders could approve cash-out loans as large as the value of the home. In lenderspeak, this is 100 percent LTV (loan-to-value ratio).

The same $400,000 homeowner could get a $400,000 loan, creating a lot more room for cash back.

While the VA will allow this, not every VA-eligible borrower can qualify, and not every VA-authorized lender will say yes. Many lenders limit cash-out loans to 90% of the current value.

Choosing the Right Time to Refinance

Having the lender’s permission to apply for a refinance doesn’t ensure you’ll save money by refinancing.

Homeowners who refinance pay upfront closing costs. Depending on the loan type and the loan amount, closing costs could be tens of thousands of dollars.

Whether the new loan’s benefits justify its costs often comes down to timing.

It may be a good time to refinance in the following cases.

1. When You Can Lower Your Interest Rate

Lowering the mortgage rate could save hundreds of thousands of dollars over a 30-year term. Lots of homeowners refinance to lower their rate.

A lower rate can’t always guarantee savings, though:

• First, the rate must be low enough to save more than the loan’s closing costs over time.

• Second, the new rate will need enough time to save money (known as the break-even period). The savings from a lower rate unfold gradually, month by month, while the costs happen all at once, upfront.

For example, let’s say you pay closing costs for a refi this year. The new loan lowers your mortgage rate by 1.5 percent. Then, next year, you decide to sell your home. Keeping the loan for only one year won’t be enough time to save money from the refi. It would’ve been better to keep the original loan.

However, keeping the same new loan for five years would likely generate enough savings to outweigh the loan’s upfront costs. Keeping the loan for decades would save a lot more.

A break-even calculator can show the exact month you’d start to save money from a refi. After breaking even, every additional month adds to the loan’s savings.

2. When Your Improved Borrower Profile Can Create More Savings

Current market conditions affect mortgage rates available to individual borrowers, but within this context, personal finances influence a borrower’s precise rates and fees.

For this reason, some homeowners can save with a refinance even when market rates are high.

For example, homeowners:

• Who have increased their credit scores or lowered debt-to-income ratios (DTI) since closing their current loan may now qualify for a more competitive rate

• Who have paid down their loan’s principal, creating more equity, may qualify for a better rate or a loan free of private mortgage insurance (PMI) fees

• Whose homes have appreciated in value quickly may qualify for a lower rate or no PMI

• Who can afford the higher payment on a shorter loan term could save thousands in interest (paying more on principal on the same loan can create a similar effect)

• Who can use a Streamline refinance program and its lower closing costs can pay less for a refi, allowing more (and faster) savings

Homeowners who can combine two or more of these scenarios are likely in a good position to refinance. Those who don’t fit any scenario may need to wait before refinancing unless market rates have recently plummeted.

Reasons to Refinance

Reducing a rate and payment is the main reason people refinance. Borrowers usually achieve this goal by lowering their interest rate, changing their loan’s term, or eliminating mortgage insurance fees.

But there are other reasons, besides saving money, to refinance:

• Replacing an ARM with a fixed loan: Adjustable rate mortgages (ARMs) start with low rates that adjust, later, to match market conditions. Some ARM borrowers like to refinance into fixed rate loans to avoid rate increases later

• Changing loan types: Refinancing into, or out of, a government loan program can benefit some homeowners. For example, trading an FHA loan for a conventional loan eliminates the FHA’s monthly insurance fees. Getting out of a government-backed loan also helps convert a primary residence into a rental (since government-insured loans like FHA finance only primary residences)

• Removing or adding a co-borrower: Removing a co-borrower from a mortgage will often require refinancing into a new loan. Changing relationships, including divorces and marriages, make this a priority for some homeowners

• Tapping home equity: Borrowing from home equity can free up cash for home improvements, college tuition, debt consolidation, or any other expense. Cash-out refinances can accomplish this goal. Home equity loans and home equity lines of credit (HELOC) could help without refinancing

Saving money isn’t always the primary goal of these types of refinances, so homeowners might pay less attention to interest rates and upfront costs.

Still, refinancing borrowers should always compare loan costs to save as much money as possible, just like they would when buying a car or making any other big purchase.

The Cost of Refinancing

Borrowers pay for a refinance through closing costs. These costs include lender’s fees, legal fees, and fees for other professional services needed to finalize a new mortgage.

More specifically, closing costs pay for the home appraisal, the credit check, the lender’s time and expertise, the recording of the deed, the closing agent’s time, escrow account service fees, upfront mortgage insurance fees for government-backed loans, and so on.

Collectively, closing costs average 3 to 5 percent of the loan amount. For a $400,000 loan, that’s $12,000 to $20,000. Smaller loans, of course, charge lower fees.

Hidden Costs of Refinancing

Unless they’re rolled into the new loan’s balance, closing costs must be paid upfront. Borrowers tend to notice this price tag.

Other refinancing costs aren’t so easy to see at first:

• Resetting your loan term: You’ll start your amortization over, making your total loan term 30 years plus the age of your current loan.

• Potentially more interest costs: 30-year mortgages collect a lot more interest than principal early in the loan’s term. Refinancing earlier in the loan’s term can avoid making those interest-heavy payments twice for one home.

• A higher monthly payment: Some refinances — ones that include cash-out or shorter loan terms, for example — usually cost more each month.

As you compare loans to each other and to your current loan, be sure to consider all the costs.

How to Start Shopping for a Refinance

“It is important that the borrower work with a trusted lender to help them accomplish their financial goals,” Lerner said.

He said factors like the loan’s size, current interest rates, and overall expenses shape each borrower’s needs. Homeowners should find the refinance loan that best serves those needs.

Comparing multiple quotes from different lenders helps borrowers find the best fit. That’s why borrowers should apply for at least three mortgage preapprovals to see what they’d be paying monthly and in total.

Homeowners should stay in the driver’s seat and not apply for a loan in response to an ad from their current lender or any other lender, Lerner said.

“Seek recommendations from friends that have a positive relationship with a lender,” he recommended.

Is Now the Right Time to Refinance?

Loan Estimates from lenders can help answer this question by showing you the numbers from the lender’s point of view.

Plugging your data into a mortgage calculator can also provide ballpark numbers to compare.