How Soon Can You Refinance a Mortgage?

How soon you can refinance your home loan depends on the mortgage requirements, but it could happen sooner than you expect. Some conventional mortgages can be refinanced right away, while other loan types require between six to 12 months before you can refinance. However, if you’re applying for a cash-out refinance, there is a longer waiting period. Most loans also require a history of on-time payments before you can refinance. 

Here’s what you need to know about how soon you can refinance a mortgage. 

What factors determine how soon you can refinance?

The length of time before you can refinance is determined by type of loan, whether a waiting period is required, cash-out vs. non-cash-out, your payment history, and mortgage qualifications.

Type of loan

The type of mortgage loan affects how much time is required before you can refinance it. The different loan types — FHA, VA, USDA, conventional, and jumbo — have different requirements for how long you need to hold the loan before it can be refinanced.

Cash-out refinance

You may need to hold your current loan longer if you’re planning to get a cash-out refinance. A cash-out refinance pays off your outstanding mortgage loan and gives you extra in a lump sum, so a longer mortgage seasoning period is generally required. 

Mortgage qualifications

Make sure you meet refinancing eligibility requirements for the new mortgage just as you did the original mortgage. The specific eligibility will depend on the type of refinance you’re getting, but you’ll want to get your credit in great shape, maintain a good debt-to-income ratio (DTI), have the necessary paperwork ready, and be prepared to pay for any potential refinancing costs required by the lender. 

Payment history

Some loan types require a history of on-time payments before you can refinance. For example, an FHA streamline refinance requires mortgages less than 12 months old to have had all payments made on time. 

Are there waiting periods for different loan types?

Some mortgages require waiting periods, also known as mortgage seasoning requirements, and you can’t get a new mortgage until the required amount of time has passed.

The waiting period is different depending on what type of loan you have. These are the loan types and their waiting periods:

Conventional

• Non-cash-out: No waiting period
• Cash-out: 6 months

FHA

• Streamline refinance: 210 days waiting period
• Non-cash-out: 12 months
• Cash-out: 12 months

VA

• Interest rate reduction refinance loan (IRRRL): 210 days 
• Cash-out: 210 days

USDA

• Non-cash-out: 12 months
• Streamlined: 12 months
• Cash-out: Not available

Jumbo

• Non-cash-out: Determined by the lender
• Cash-out: Determined by the lender

What are the benefits and drawbacks of refinancing early?

Refinancing early has some clear pros and cons to consider.

“There is no good rule of thumb to determine if a refinance will save money,” says Casey Fleming, a mortgage advisor in California and author of “Buying and Financing Your New Home.” 

“The only accurate way to determine that is to look at the total cost of an existing loan moving forward, and compare that to the total cost of a proposed loan, over a specific period of time — generally how long a homeowner intends to live in the house,” Fleming says.

How does refinancing affect your credit score?

Refinancing replaces your old mortgage with a new mortgage. If you’ve built up credit history over several years, a new account will decrease the average age of your credit history, which can lower your credit score initially. 

However, there are situations where refinancing your mortgage could improve your credit score. If you pay off revolving debts with a cash-out refinance, you’ll decrease your credit utilization ratio, and your credit score could increase. 

How can you decide if refinancing is right for you?

There are specific benefits a refinance offers. Some questions you may want to ask include:

Can I get better loan terms? Ask yourself if you can secure a much better mortgage interest rate; one rule of thumb advises a percentage point or more. You might also want to switch from an adjustable-rate mortgage to a fixed-rate mortgage or pay off the home faster with a 15-year mortgage term. 

Can I eliminate mortgage insurance? Refinancing could make sense if you’re paying mortgage insurance and you want to remove it. 

Can I get cash out? If you’re looking to access your home’s equity, refinancing could be the answer if you meet the loan type’s seasoning requirements. 

Can I add or remove a cosigner? Refinancing makes sense if you need to add or remove someone from the mortgage (such as in the case of divorce). 

Does it lower my monthly payments? If you’re looking for lower monthly payments, you may be able to achieve that in one of two ways. First, with a lower interest rate, you’ll see lower monthly payments. Second, by resetting the mortgage clock back to 30 years, you may see lower payments. However, keep in mind that lower monthly payments may mean you’re paying more interest over time. 

How much lower should an interest rate be for a refinance to make sense?

“The general rule of thumb is that market rates should be 1% lower than your current rate,” says Mason Whitehead, a Dallas-based Branch Manager for Churchill Mortgage. “But that ‘rule’ has a lot of flaws built into it.” 

“Someone with a large loan balance that can save a half-percent could save hundreds of dollars a month,” Whitehead says. “Ultimately, it’s best to talk to a mortgage professional who will look at your entire financial picture and be able to show you the financial benefits/savings — if it actually exists.”