How Long Do You Have to Own a Home Before You Can Refinance?

Refinancing a home loan involves replacing an existing mortgage with a new one. Homeowners often consider refinancing to take advantage of lower interest rates, which can reduce monthly payments, or to change the terms of their loan, such as converting an adjustable-rate mortgage to a fixed-rate one. Another common motivation is to access home equity through a cash-out refinance for various financial needs. The length of time a homeowner has owned their property is a significant factor in determining eligibility for a refinance.

General Ownership and Seasoning Requirements

Lenders typically require a specific period of home ownership and on-time mortgage payments before a refinance is permitted, a concept known as “seasoning.” This seasoning period demonstrates a borrower’s payment history and helps reduce risk for lenders. For conventional loans, a general seasoning period of six to twelve months is common, meaning a borrower needs to have made at least six to twelve consecutive payments on their current mortgage. Some lenders may allow a rate-and-term refinance, which changes the interest rate or loan term without taking cash out, immediately after closing on the original home loan, though a six-month seasoning period is still frequently imposed.

The rationale behind seasoning requirements is to establish a homeowner’s commitment and reliable payment history, minimizing the risk of quick turnovers or financial distress. For cash-out refinances, which allow homeowners to borrow more than their outstanding mortgage balance and receive the difference in cash, the seasoning requirements are often longer and more stringent. This is because cash-out refinances involve tapping into home equity, and lenders want to ensure sufficient equity has been built and that the homeowner has a stable financial footing. Fannie Mae and Freddie Mac, which purchase many conventional loans, generally require a 12-month seasoning period for cash-out refinances, measured from the note date of the mortgage being refinanced to the note date of the new cash-out refinance.

Refinancing Rules for Different Loan Types

Specific seasoning requirements for refinancing vary considerably depending on the type of mortgage loan.

Conventional Loans

For conventional loans, a rate-and-term refinance might be possible after a short period, potentially six months, while a cash-out refinance typically requires at least 12 months of seasoning. Loan-to-Value (LTV) ratios and existing home equity also play a significant role, as conventional cash-out refinances often require at least 20% equity.

FHA Loans

Federal Housing Administration (FHA) loans have their own set of seasoning rules. For an FHA Streamline Refinance, borrowers must have made at least six payments on their current FHA-insured loan. Additionally, at least 210 days must have passed since the closing date of the FHA-insured mortgage being refinanced. For an FHA cash-out refinance, a longer seasoning period is required, typically 12 months of ownership and occupancy, with a history of on-time mortgage payments. The maximum LTV for an FHA cash-out refinance is generally capped at 80% of the home’s appraised value.

VA Loans

For Veterans Affairs (VA) loans, an Interest Rate Reduction Refinance Loan (IRRRL), also known as a VA Streamline Refinance, requires that the loan being refinanced has been seasoned. Borrowers must have made at least six consecutive monthly payments on the original loan. The note date of the new refinance loan must be no earlier than 210 days after the date the first monthly payment was due on the mortgage being refinanced. For VA cash-out refinances, lenders typically require a seasoning period of at least six months, meaning six consecutive monthly payments must have been made on the current mortgage. Some sources also indicate a 210-day seasoning period from the first payment date for VA cash-out refinances.

USDA Loans

United States Department of Agriculture (USDA) loans also have specific seasoning requirements. For USDA Streamline-Assist refinances, borrowers typically need to have had their current USDA loan for at least 180 days, and made at least six consecutive payments, with the first payment due date on the new loan no earlier than 210 days after the first payment due on the loan being refinanced. Some lenders may require a 12-month seasoning period, with no late payments in the past six to twelve months depending on the streamline type. The USDA Streamline-Assist program usually requires a reduction in the monthly payment by at least $50.

Waiting Periods After Major Financial Events

Major adverse financial events can significantly impact the ability to refinance a mortgage, often imposing mandatory waiting periods. These periods are distinct from general seasoning requirements and begin from the date of the event’s resolution.

Chapter 7 Bankruptcy

After a Chapter 7 bankruptcy, the typical waiting period before qualifying for a conventional loan is four years from the discharge or dismissal date. However, this period can be reduced to two years with documented extenuating circumstances. For FHA loans, the waiting period after a Chapter 7 bankruptcy discharge is generally two years, though exceptions for one year may be made for extenuating circumstances. VA loans usually require a waiting period of two years from the Chapter 7 discharge date.

Chapter 13 Bankruptcy

For Chapter 13 bankruptcy, which involves a repayment plan, the waiting periods differ. Conventional loans typically require a two-year waiting period from the discharge date or four years from the dismissal date. Extenuating circumstances can reduce the waiting period to two years from the dismissal date. FHA loans may allow an application while still in the Chapter 13 repayment plan, provided at least 12 months of satisfactory payments have been made and court approval is obtained. After a Chapter 13 discharge, a 12-month waiting period is common for FHA loans. VA loans may allow a refinance after one to two years from the discharge date, or potentially less if extenuating circumstances are present and the borrower has re-established credit.

Foreclosure

In the case of a foreclosure, the waiting periods are generally longer. For conventional loans, a standard seven-year waiting period from the completion date of the foreclosure is typical. This period can be reduced to three years if extenuating circumstances are documented, often with a requirement for a 10% down payment for a new purchase or rate-and-term refinance. FHA loans generally require a three-year waiting period after a foreclosure or deed-in-lieu of foreclosure. VA loans typically have a two-year waiting period after a foreclosure.

Short Sales or Deeds-in-Lieu

For short sales or deeds-in-lieu of foreclosure, which are often less impactful than a full foreclosure, the waiting periods are generally shorter than for foreclosure. Conventional loans usually require a four-year waiting period from the date of the short sale or deed-in-lieu. This can be reduced to two years with documented extenuating circumstances. For FHA and USDA loans, the waiting period after a short sale or deed-in-lieu is typically three years. VA loans may have a two-year waiting period for a deed-in-lieu. These waiting periods begin from the disposition date of the property, not necessarily when the financial distress began.