Homeowners

How Soon Can You Refinance After Buying a Home?

For some homeowners who locked in mortgages during a higher-rate moment, one question looms large: “How long do I have to wait before I can refinance?”

The truth is there isn’t a one-size-fits-all answer. It depends on your loan type, insurance requirements, and credit scores, all of which come into play. You may also want to wait until mortgage interest rates fall enough that you can receive significant savings.

Lenders also often have their own timetables and requirements.

The why of refinancing, however, is easier to address.

“People refinance for a few reasons: to get a lower rate, switch from an [adjustable-rate mortgage, aka] ARM to a fixed-rate mortgage, shorten the loan term, or to use their equity,” said Paul Herskovitz, founder and CEO of Discount Lots. “Your goal will shape the right timing.”

Here’s what to know about how soon you can refinance your loan after closing on your home.

When are you eligible to refinance after buying a home?

Most lenders require a minimum of six months from your original closing date before you can refinance a Conventional loan.

“Other programs may require 12 months seasoning of ownership,” said Anthony Ramirez, a senior loan officer at New American Funding in San Diego, Calif. (“Seasoning” refers to how long you’ve owned the home or held the loan before you’re eligible to refinance.)

If your loan is through the Federal Housing Administration (FHA) or U.S. Department of Veterans Affairs (VA), you will have to wait at least 210 days from the date of closing to be eligible to refinance.

Why? Lenders want to see stability—both in you and the property.

For cash-out refinances, you’ll probably need 12 months of seasoning and proof that the home’s value has increased. (These are loans that allow you tap into your home equity by taking out a larger loan to replace your current mortgage and pocket the difference.)

The numbers that signal it’s time to refinance

Before you wonder about the timing of a refinance, evaluate the math behind it.

“The first thing we want to review is what’s the subject property’s current market value and how long have you owned the property,” said Ramirez.

If your home has increased in value, or you’ve made major improvements that have raised how much your home is worth, that may fast-track your refinance path. But the clock isn’t based on those values alone.

“From there, we would look at the current market interest rate versus the pre-existing rate, and if there is even a [financial] benefit to a refi,” said Ramirez.

The best time to refinance? When the math works for you

So, what does “net tangible benefit” mean?

Let’s say you’re offered a rate that is one percentage point lower than your current one. That could cut hundreds off your monthly payment. But that benefit comes with some costs.

Closing fees for refinancing typically run between 2% and 6% of your loan amount. That means a $400,000 mortgage might cost $8,000 to $24,000 upfront to refinance.

“As a rule of thumb, we would want to have at least a 36-month or less recoupment,” said Ramirez.

That means your monthly savings should be enough that, when you divide the total cost of the refinance by how much you're saving each month, the number comes out to three years or less.

For example, if the refinance costs $6,000 and you’re saving $200 a month, it would take 30 months to break even. After that, the monthly savings are money in your pocket.

Refinance when the timing’s right—and your loan could use a reset

While many refinance headlines focus on interest rates, savvy borrowers often use refinancing to get them into new loans that can save them money—or time.

For example, switching from an FHA loan (with costly mortgage insurance premiums) to a Conventional loan may help you to reduce your reduce monthly payments if you have at least 20% equity in your property.   

“[That] would allow the lender to also remove any existing mortgage insurance,” said Ramirez.

Another common play? Going from a 30-year loan to a 15-year loan. Yes, your monthly payment will likely rise, but your savings in interest can be significant. Plus, you’ll pay off the home much sooner.

You also build equity faster, which can open more financial doors down the line.

And if you have an ARM and are wary of rates rising in the future, refinancing into a fixed-rate loan offers predictability, even if the new rate is slightly higher.

Refinance when the fine print checks out

Not every refi requires an appraisal. But most do, especially Conventional loans. FHA and VA borrowers may have access to streamlined programs that skip the appraisal altogether.

Still, a strong appraisal can be your golden ticket. It’s what determines your current equity and whether you’ll need to keep paying mortgage insurance.

You're ready to refi when your credit and income check out

Even if market rates are lower, lenders will re-evaluate your financial profile all over again when you apply to refinance. That means updated credit checks, income documentation, and debt-to-income (DTI) ratios. The ratios are how much you owe compared to how much you earn.

“If your scores deteriorated from the time you obtained your mortgage, you may be in a more risky position in the lender’s eyes,” said Ramirez. This could lead to you receiving higher interest rates.

On the flip side, improved credit scores can unlock better rates and potentially lower mortgage insurance costs. “The lower the risk, the lower the rate,” Ramirez added.

Income fluctuations can also affect approval, unless you’re pursuing a streamlined FHA or VA refinance.

“As long as you still maintain employment and payments are on time... add an appraisal waiver and now you have a really good situation to be able to obtain a lower rate when they come around,” advised Ramirez.

In short, the best time to refinance is when it can save you thousands.

“Refinancing is a powerful tool, but it works best when it’s part of a bigger plan,” said Herskovitz.

So, understand your numbers. And if rates fall quickly, be prepared to act strategically.

^{Anthony Ramirez NMLS# 249819}