How Soon Can You Refinance a Mortgage?

by | Aug 6, 2024

how soon can you refinance

Refinancing* your mortgage may be a strategic financial move that may unlock potential savings, but a common question for homeowners is, how soon can you refinance? Timing is everything. Whether you’re looking to lower your monthly mortgage payments, pay off your home loan quicker, or tap into your home equity for extra cash, knowing when to refinance is important. Let’s dive into the basics of refinancing, how soon you can refinance depending on the loan type, and how to determine the ideal time to consider the option.

Understanding the Basics of Refinancing

Refinancing involves taking out a new mortgage with different terms and using it to pay off your existing loan. The process may result in various benefits:

  • Lower Interest Rates. If market conditions cause rates to drop since you purchased your original home loan, refinancing at a lower rate may lead to significant savings over the life of the loan.
  • Reduce Monthly Payments. Securing a lower interest rate or a longer loan term may also decrease your monthly mortgage payments.
  • Shorter Loan Term. If you can pay off your mortgage much sooner due to an increase in income, for example, it may make sense to refinance into a shorter term.
  • Switch Loan Type. If you initially choose an Adjustable-Rate Mortgage, also known as an ARM loan, you may be able to refinance into a fixed-rate loan before the ARM rate adjusts. This may save you interest costs in the long run.
  • Cash Out on Your Equity. When refinancing, you might opt for a cash-out refi loan. This allows you to tap into your equity, which is the portion of your home’s value that is yours.
  • Payoff Higher-Interest Debts. You can use the cash from your equity to pay other debts such as high-interest credit cards, car loans, or student loans.
  • Eliminate Private Mortgage Insurance. In some cases, you may have to pay a monthly fee for mortgage insurance. Once you reach a certain equity threshold, some lenders allow you to remove the private mortgage insurance by refinancing.

Timing Guidelines Based on Loan Type

The timing for when you can refinance your home depends on the lender and type of loan. It’s common for mortgage refinances to require a waiting period, or a seasoning period. Here are some general guidelines on how soon you can refinance a mortgage:

Conventional Loans

For conventional loans, most lenders require at least six months from your original closing date before you can refinance. This waiting period allows lenders to assess your payment history and ensure that you’re not a high-risk borrower. If you use another lender to refinance, you may be able to do a rate-and-term refinance without a seasoning period.

FHA Loans

For FHA loans, which are insured by the U.S. government’s Federal Housing Administration (FHA), you may be able to get an FHA Streamline Refinance. This simplifies the process and requires less documentation. However, you can’t get a streamline refinance until after 210 days from the closing date. You must also have made at least six months of on-time payments.

VA Loans

Similar to FHA, VA loans also offer a streamlined refinancing option known as an Interest Rate Reduction Refinance Loan (IRRRL). You’ll have to wait 210 days from the closing date of your existing VA loan and make six consecutive on-time payments to be eligible.

USDA Loans

These types of loans for rural areas are similar to those of FHA and VA loans. You’ll typically need to wait for 180 days or 12 months (depending on the type of refinancing) and establish a history of making on-time payments for the past six months to one year depending on the program.

Cash-Out Refi Loans

Additionally, how soon can you refinance with a cash-out refi? For this option, you typically need to have occupied the home as a primary residence for at least 12 months.

Why Timing Matters

Prepayment Penalties and Other Fees

A mortgage prepayment penalty is a fee charged by lenders if you pay off your mortgage early. Essentially, this helps compensate lenders for the interest income they lose when the loan is paid off early. When refinancing, it’s important to know if your current mortgage has a penalty or other fees associated to paying off the loan early. The cost of the fee may outweigh the benefits of refinancing.

Down Payment Assistance

Additionally, if you used down payment assistance for your current mortgage, check the terms of that aid. For some programs, refinancing too soon might require you to repay the assistance amount. Other programs may even require repayment of the down payment assistance amount when you refinance regardless of how long you’ve had the loan. This could impact any potential savings from refinancing.

Best Practices and Considerations

When deciding whether it’s a good time to refinance, here are a few things to keep in mind:

  • Interest Rates. Monitor the rate and market trends if your primary goal is to refinance with a lower interest rate. You can always reach out to your local loan officer at Supreme Lending to help determine what your potential refinance rate may be.
  • Closing Costs. Just like a traditional mortgage, refinancing includes closing costs that can range from 2% to 6% of the loan amount. Be prepared so you’re not surprised at the closing table.
  • Break-even Point. Calculate the break-even point by determining when the costs of refinancing will be outweighed by the potential savings. Basically, it’s when your investment in refinancing will start to pay off.
  • Loan Term. Consider whether you want to shorten your loan term to save on interest over the life of the loan or extend it for potentially lower monthly payments.
  • Credit Score. A stronger credit score may qualify you for more favorable rates, so it’s worth monitoring your credit and making regular, on-time payments.
  • Financial Goals. One of the most important aspects of refinancing is to make sure that a refinance aligns with your short- and long-term financial goals. Are you looking to minimize other debts, invest in renovations, or change your loan type?

Is Now the Right Time to Refi?

So how soon can you refinance your mortgage? Ultimately, it comes down to the loan-specific guidelines and your personal financial goals. It’s essential that you are well-informed, understand the refinancing process, and know all the factors that will go into your new refinanced loan. At Supreme Lending, we’re committed to helping you navigate your refinancing journey with ease and confidence.

Ready to explore your refinancing options? Contact us today to get started.

*By refinancing an existing loan, total finance charges may be higher over the life of the loan.

Can You Add Renovation Costs to Your Mortgage?

by | Aug 1, 2024

add renovation costs to mortgage

When someone asks if it’s possible to add renovation costs to mortgage, the simple answer is yes! When buying a home, people dream of finding the perfect property that checks off all their boxes. However, sometimes the ideal property may need a little work to become that dream home. This is where renovation loans come in. By adding renovation costs to your mortgage, you can finance both the purchase of your home and the necessary improvements into a single loan. Read on to learn more about renovation loan options, benefits, and frequently asked questions.

Types of Renovation Loans

There are several loan programs to consider that can add renovation costs to your mortgage:

  • FHA 203(k). This renovation program is an FHA loan, insured by the Federal Housing Administration. There are two options depending on the extent of the home remodel or repairs. The Limited 203(k) is for more minor updates that ensure the home is safe and functional and can include basic cosmetic improvements. The Standard 203(k) option offers more flexibility and larger scale renovations, such as structural foundation or adding square footage. Only primary residences are eligible. Click here to read more about the FHA 203(k) Renovation Loan.
  • Fannie Mae HomeStyle®. This is a Conventional loan option to add renovation costs to mortgage. It includes home improvements that are permanently affixed to the property and add value, including luxury items such as high-end flooring, decks, fencing, a pool, etc. Unlike the FHA 203(k), this program can also be used toward qualified second homes and investment properties.
  • VA Renovation. This renovation loan is for eligible military Veterans, active duty personnel, and some surviving spouses. It offers the same benefits as VA loans, such as no down payment requirements and lower closing costs, plus the ability to include certain home repairs into a single, affordable mortgage.
  • Supreme Dream 203(k). Another exciting renovation loan program that Supreme Lending offers is the FHA 203(k) loan, as noted above, combined with the Supreme Dream down payment assistance resulting in less upfront costs.

How Renovation Loans Work

  1. Determine Your Renovation Needs. Assess the scope of your renovation project and obtain estimates from contractors to understand the anticipated costs.
  2. Loan Application. Apply for a renovation loan with a lender. You will need to provide detailed renovation plans. At Supreme Lending, we have a dedicated construction lending team to support all renovation loans for a smooth process.
  3. Loan Approval. Once approved, the loan amount is based on the projected value of your home after the renovations are completed.
  4. Renovation Process. Funds are typically disbursed in stages as the renovation progresses ensuring that contractors are paid, and the work is successfully completed.
  5. Final Inspection. After the renovations are finalized, a final inspection is typically required to verify that the work meets the loan requirements, and any remaining funds are released.

Frequently Asked Questions

Can I add renovation costs to any type of mortgage?

Not all mortgage types allow for renovation costs to be added. Specific loans, such as the programs listed above, are specifically designed to fund renovations and have additional steps and guidelines to follow.

How are renovation costs disbursed with a renovation loan?

With a renovation loan, funds for the purchase of the property are typically disbursed at closing. The renovation funds are placed in an escrow account to be paid out as repairs are completed.

How are renovation loans approved?

Your lender’s underwriting department will help approve the loan application and make sure all guidelines and requirements are met. This includes reviewing the home’s value after the renovations are made. The renovation schedule and documentation are also evaluated to ensure a seamless process.

Are there limits on the amount someone can borrow for renovations?

Yes. Each loan type has specific limits depending on the program. For example, an FHA 203(k) Limited loan currently has a maximum of $35,000* repair escrow amount to use toward the contractor’s costs and renovation fees. In turn, an FHA 203(k) Standard depends on the property’s FHA county loan limit. For Conventional renovation loans, the maximum renovation cost is typically up to 75% of the after-improved home value.

*Note: The FHA 203(k) Limited options will be increasing its maximum limit for renovation costs to $75,000 on or after November 4, 2024.

Click here for a complete guide to home renovation loans that includes a detailed comparison of FHA 203(k) and Conventional HomeStyle® loans.

Want to learn more about how to add renovation costs to your mortgage? Get started in creating your dream home with the help of Supreme Lending. We’re here to help every step of the way.