How Soon Can You Refinance a Mortgage?

Refinancing your mortgage means that you’re replacing your current mortgage with a new loan under different financial terms. You might seek a refinance to save money on your monthly mortgage bill, secure a lower interest rate, adjust your overall mortgage payment timeline, or access extra cash for expenses. 

Before deciding to refinance your mortgage, you should know what factors determine the timeline. Let’s dive into the details below, and you can decide if this is the right decision for your financial future.

What affects your refinancing timeline?

Your mortgage type may be a primary factor in considering when and how you refinance. You will likely have either a conventional mortgage or one backed by the Federal Housing Administration (FHA), Veteran Affairs (VA), or the Department of Agriculture (USDA). 

For conventional mortgages, how soon you can apply for a refinance may depend on your lender and the type of refinance you’re requesting. While some lenders may allow you to apply for a refinance immediately, others may request you to wait up to six months. 

It should also be noted that FHA, VA, and USDA mortgages often have a time threshold you must reach before you can refinance. For example, FHA streamline refinances require you to wait up to 210 days and at least six successful monthly payments before refinancing. So, make sure to verify your timeline with the lender, mortgage, and refinance type you’re considering.

The market context can also affect how beneficial a mortgage refinance is for your financial future. Though the market can be difficult to predict, it can be useful to follow reputable sources to understand where experts think mortgage rates might be headed.

For example, Fannie Mae and the Mortgage Bankers Association have predicted that rates will close out the year between 6-7% Annual Percentage Rate (APR). If that gives you access to sizable savings in your own monthly payments, a refinance might be helpful for you. If it doesn’t give you a decrease, then it might not be the right time for you to refinance. 

That said, refinancing isn’t always about accessing the very best rates in the current economic context. It can also allow you to consolidate debt or adjust your long-term timeline for paying off your mortgage. It’s important to weigh your options so you can make the right decision for your financial future. 

General refinancing timelines

There are some key elements that may play into your refinancing eligibility, like the seasoning period, your loan type, and your creditworthiness.

The seasoning period

Some lenders require that you have the cash you intend to use for your mortgage in your account for a specific amount of time. This amount of time is referred to as the “seasoning period” and, if required, is usually 60 to 90 days. Holding the funds during the seasoning period may help affirm to the lender that you’re a trustworthy borrower.

The seasoning period could also mean the amount of time that you have your current mortgage before you refinance. This is more important for refinancing a mortgage backed by the FHA, the VA, or the USDA, as well as for a cash-out refinance of a conventional mortgage.

Assessing your eligibility

Requirements for a mortgage refinance often vary depending on various factors, including the type of mortgage you’re refinancing and your lender. That said, they typically will require a favorable credit score, a maximum of 43% debt-to-income (DTI) ratio, and at least 20% equity in your home. The more favorable financial profile that you present to the lender, the better rates you will usually access with a refinance. 

Refinancing and credit

While a change in credit may affect when you decide to refinance, applying for a refinance may not significantly affect your credit. However, every time you apply for a refinance, a lender typically runs a hard inquiry into your credit file, which could cause your credit score to dip temporarily. You can reduce the number of hard inquiries into your credit file by reducing the total amount of times you apply for a refinance.

If you’re approved for a refinance, be mindful of making your monthly payments on time and keeping your outstanding debt to a minimum. Otherwise, you may see a negative effect on your credit over time.

Refinancing timelines by loan type 

The different types of mortgages may have different timelines and requirements for refinancing:

Conventional loans

Timeline: You can refinance most conventional mortgages immediately, but a cash-out mortgage usually requires 12 months of payments on your current mortgage.

Types of refinancing: Conventional mortgages may lead to cash-out refinance or a rate-and-term refinance. A cash-out loan is when you tap into your home’s equity to access additional cash on top of your current mortgage amount. A rate-and-term refinance is when you change the terms of your current mortgage to get better rates and/or a more appropriate timeline for your financial needs.

FHA loans:

Timeline: You typically need 12 months of ownership for cash-out refinances and 210 days of ownership for streamlined refinances.

Notes: The cash-out refinance terms for an FHA loan are very similar to a conventional mortgage cash-out refinance.

An FHA mortgage also has the option for a streamline refinance, which doesn’t require an appraisal and tends to happen more quickly. To qualify for a streamline refinance, you must have made your last six payments on time and owned your property for 210 days.

VA loans:

Timeline: Typically, you need a minimum of 6 months or 210 days for a cash-out refinance or an Interest Rate Reduction Refinance Loan (IRRRL). 

Notes: VA loans are for veterans and can offer some distinct benefits from other mortgage plans. Refinancing a VA mortgage can either look like a cash-out refinance or the IRRRL, which acts like a streamline mortgage, ideally giving you better or fixed rates.

USDA loans:

Timeline: For a USDA streamlined assist or standard refinance, you typically need 180 days of on-time payments and 12 months of owning your home. 

Notes: USDA refinancing has additional income requirements per their single-family housing rules.

Is now the right time for you to refinance your mortgage?

There are many things to consider before you can refinance your mortgage. If you feel like the market is playing in your favor and you feel ready for a refinance to adjust your monthly savings budget, then now might be a great time for a refinance. If you still need to make some payments on your current mortgage, then waiting could be beneficial for your current financial situation as well. Always consult with your lender to determine whether they have any rules around refinancing that may influence your decision-making. For example, Discover® Home Loans will only originate one 1st lien mortgage per property per 12-month period.