How Long Until You Can Refinance a Mortgage?

Mortgage refinancing involves replacing an existing home loan with a new one, often with different terms and conditions. Homeowners typically consider refinancing to achieve various financial objectives. These goals might include securing a lower interest rate, adjusting the loan term, or accessing accumulated home equity. Refinancing can lead to reduced monthly payments or significant savings over the loan’s lifetime.

Minimum Waiting Periods

Homeowners face specific time-based requirements, known as seasoning periods, before they can refinance their mortgage. These waiting periods vary by loan type and refinance nature.

For conventional loans, there is no specific waiting period for a rate-and-term refinance. For a cash-out refinance, most lenders require the borrower to be on the title for at least six months.

FHA loans have distinct seasoning rules. For an FHA Streamline Refinance, borrowers must wait at least 210 days from the closing date of their current FHA loan and make six on-time monthly payments. For an FHA cash-out refinance, the homeowner must occupy the property as their primary residence for at least 12 months and have consistent on-time mortgage payments for the past year.

VA loans also have specific waiting periods. For a VA Interest Rate Reduction Refinance Loan (IRRRL), the VA mandates a waiting period of at least 210 days from the first payment due date of the original loan, requiring six monthly payments. For a VA cash-out refinance, while the VA does not set a strict waiting period, many lenders prefer borrowers have made six to twelve months of payments on their current loan.

Adverse credit events, such as bankruptcy, foreclosure, or short sales, impact refinance eligibility by imposing longer waiting periods. For a Chapter 7 bankruptcy, a homeowner must wait four years after the discharge date for a conventional loan. For FHA and VA loans, the waiting period after a Chapter 7 discharge is two years.

Following a Chapter 13 bankruptcy, waiting periods are shorter. Homeowners may qualify for a conventional loan refinance two years after discharge or four years after dismissal. FHA and VA loans have no mandatory waiting period after a Chapter 13 discharge, provided all payments were made as agreed. Foreclosure and short sales also carry waiting periods that vary by loan type, ranging from three to seven years for conventional loans, and shorter for FHA and VA loans.

Key Eligibility Requirements

Beyond waiting periods, financial and property criteria determine refinance qualification. Lenders assess these factors to evaluate risk. Meeting these requirements influences new loan terms, including the interest rate.

A homeowner’s credit score is a factor in refinance eligibility. For conventional loans, lenders require a minimum credit score of 620; scores above 740 can lead to more favorable terms. FHA loans permit lower credit scores, with some programs accepting scores as low as 500 or 580, but most lenders seek scores in the 600-620 range. For VA loans, the VA does not set a minimum credit score, but individual lenders look for scores of 550 to 620 or higher.

The debt-to-income (DTI) ratio is another metric lenders analyze. This ratio compares a borrower’s total monthly debt payments to their gross monthly income. Lenders prefer a DTI ratio below 43% for many refinance programs; some allow up to 50% for borrowers with strong credit or substantial equity.

The loan-to-value (LTV) ratio and home equity also play a role in qualifying for a refinance. LTV is calculated by dividing the loan amount by the home’s appraised value. For a rate-and-term refinance, a homeowner might qualify with a high LTV, up to 95-97%. A cash-out refinance, which allows access to home equity, requires a lower LTV, around 80% for conventional and FHA loans, while VA loans permit up to 90%. An appraisal determines the home’s current market value.

Lenders require verifiable, stable income and employment history. This means demonstrating a steady employment record and sufficient income to support the new loan.

The Refinance Application Process

Once a homeowner meets waiting periods and eligibility requirements, they can proceed with the mortgage refinance application. This begins with collecting financial documents. Homeowners should gather recent pay stubs, tax returns, bank statements, current mortgage statements, and property information.

After compiling documentation, apply for the loan. This can be done online or with a loan officer. The application collects personal, financial, and property details.

Following application submission, the loan enters underwriting. The lender verifies all provided information, including income, assets, and credit history. An appraisal of the home is ordered to determine its current market value. Some streamlined refinance programs, such as FHA and VA options, may not require a new appraisal or extensive income verification.

The final stage is closing, where parties sign legal documents. These include the new mortgage note, deed of trust, and disclosures outlining loan terms and closing costs. Funds are disbursed, and the new mortgage replaces the old one.