Refinancing a Mortgage: Rush in or Wait and See?
Let’s own up to it: when it comes to serious finance-related matters, most of us are Monday morning quarterbacks. Our second thoughts are flawless, and our hindsight is 20/20. This is also true of a complex process like getting a mortgage, especially if you're doing it for the first time. When you have learned the ropes and gotten into the swing of things, you realize that you should have locked in the mortgage rate when there was a chance, could have applied for another type of loan, or ought to have negotiated more advantageous conditions.
Luckily, it’s not too late to redress the situation by refinancing your mortgage. Simply put, it means replacing your current mortgage with a new one on terms that you consider more favorable. But when should you do it? Should you go to the lending agency the morning after closing the deal? Does the law require you to wait a certain period? Read the article to learn all the considerations.
Mortgage Refinancing Waiting Time: A Loan Type Breakdown
First of all, you should understand that there is no mandatory waiting period stipulated by either federal or state laws. Rather, the timing rules are established by lending agencies in their seasoning requirements. Plus, loan program guidelines based on the loan type determine the waiting period for specific mortgage options. Let’s discover the details.
Conventional loans
If you take a rate-and-term conventional loan backed by Fannie Mae or Freddie Mac, you can refinance your mortgage the next minute after closing it (imagine how funny you will look, though). Evidently, to make it less funny, many lenders impose a six-month seasoning period on refinancing. You can still enjoy all the fun of immediate refinancing and skip this period by switching lenders.
However, if you are poised for a cash-out loan, you can’t escape those six months (and will have to reach 20% of home equity) even if you go to another agency. Although people looking for easy access to cash should choose HELOC loans over conventional ones.
There is one more caveat here: a prepayment penalty. If your contract establishes a fee for paying off the loan early, this extra cost may set all possible benefits of refinancing the mortgage at naught.
FHA loans
The Federal Housing Administration determines different waiting times for three refinance types.
- FHA Streamline Refinance. You can do it after making six on-time loan payments and/or waiting for at least 210 days since the original loan commenced.
- FHA rate-and-term refinance. Allows for no more than one late payment within the past year and still requires a six-month waiting period.
- FHA cash-out refinance. The refinancing terms are 12 months of home ownership or a six-month-old existing mortgage. Naturally, all payments for the last year have to be made on time.
These are FHA minimums, but some agencies may add their own requirements on top of these, so check in with your lender.
VA loans
The Department of Veterans Affairs doesn't discriminate between IRRRL (Interest Rate Reduction Refinance Loan) and VA cash-out refinance by setting up a 210-day waiting period or six on-time payments (the longer one wins) for each option.
Again, inquire about lender overlays (if any) added by your agency.
USDA loans
There are three refinancing options offered by the United States Department of Agriculture – Streamline, Streamlined-Assist, and Non-Streamlined. The first one is the most flexible because it lets lenders set a refinance period at their discretion between six and twelve months. The other two necessitate a full year of on-time payment history.
However, additional refinance rules may differ from lender to lender, so make sure you know them.
Jumbo loans
Since they aren’t regulated by any governmental institutions, it is the lender who determines all the rules here. Typically, the waiting period established by agencies and banks ranges from six to twelve months – just ask your loan officer for the term.
As jumbo loans are honed for big-ticket property and deal with large sums, borrowers should understand that they are in for a more stringent procedure – from meticulous underwriting to a greater volume of documentation involved. Expect no less from refinance rules.
Not to get lost among all these niceties and intricacies across various loan types, it is better to address seasoned experts in the field for advice and assistance.
How LBC Mortgage Can Help You
Our agency has provided mortgages of different types (including conventional loans, jumbo loans, FHA loans, and more) to Americans across 10 states and nationwide for 18+ years. During this time, our qualified and certified staff has gained extensive experience refinancing these mortgages, so that we can consult you on the nitty-gritty of the process based on your unique situation and loan type.
Contact LBC Mortgage for a free consultation and receive competent recommendations.
Mortgage Refinance Waiting Time Summarized
Mortgage refinancing is a go-to method to secure more favorable loan conditions. Neither the US federal nor state legislation regulates the duration of a period that should elapse after taking a mortgage to refinance it. Thus, lenders establish the waiting time themselves. Plus, official guidelines apply to government-backed loans (such as FHA, VA, and USDA mortgages). On average, the waiting time lasts from six to twelve months, provided the borrower doesn't miss payments.
To learn the exact term for your specific use case and loan type, consult the lender you choose for refinancing your mortgage.