How Soon Can One Refinance a Home?
When interest rates fall, the number of reasons to refinance a home increases because of the opportunity to lower payments or shorten the mortgage term. You have to consider what you want to accomplish with a refinance. To best meet your needs, the length of time you have to wait to refinance after the initial purchase will be determined by those goals.
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Cash-Out Refinance
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You will need to have been on the title and have made payments for 12 months after the initial purchase to do a cash-out refinance and use the new appraised value. Cash-out refinance involves pulling out equity in cash or consolidating debts. If those debts are not liens against your home, the funds used to pay them are considered cash back to you.
Getting funds to remodel a home as a cash-out refinance works the same way. If you spent a lot of money out of pocket on remodeling your home and wish to repay yourself in a refinance, you'll want to use the new appraised value, and that requires a 12-month "seasoning" period.
Refinancing Your Home for Rate and Term
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If you bought your home with private financing, you can refinance to decrease your interest rate or get a 15- or 30-year term. Again, there is a 12-month "seasoning" period to use the new appraised value.
You may be able to refinance before the 12-month period is up if your balance is substantially lower than the initial purchase price. Ask your lender for a quote of closing costs and current interest rate, then look at the monthly payment savings. Divide the savings into the cost to close the loan, and this will tell you how long you need to be in the home to break even on the refinancing. -
Refinance Your Mortgage Immediately
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No matter how you bought your home, you can immediately refinance the mortgage, but there are several restrictions. First, the lender will work from the initial purchase price, not from a new appraisal. You can pay off your loan and add closing costs, as long as the loan-to-value percentage is not higher than the new loan requires. This would work if you made a sizable down payment on the initial purchase and you choose a conventional loan. To avoid private mortgage insurance (PMI), you need to be able to roll in your new closing costs and loan balance in the refinance and have it be equal to (or less than) 80 percent of the initial purchase price.
If you bought your home through FHA, you may be able to "streamline refinance" the loan with no time constraints, but there is an equity requirement in that the new loan plus closing costs cannot exceed the initial loan amount.
Refinance a Home You Inherited
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If you have inherited a home, you may do a cash-out refinance based on present appraised value immediately. As long as you are on the title and qualify for the new loan, there is no seasoning or waiting period. You will need a rental or mortgage history for the previous two years, and your credit and employment must meet the lender's guidelines.
Possibilities for Those Who Paid Cash
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If you recently purchased a home and paid for it in cash (and there are no liens or mortgages), there is not much you can do with a conventional or FHA mortgage, because the purpose of a mortgage would be to regain some of the money you spent. You might ask your local bank about an equity loan that is secured by the property.
Note: If you plan to get a new mortgage after the 12-month seasoning period, do not get a line of credit. (This is where you draw out funds on an as-needed basis. Each time you draw out funds, your 12-month clock gets reset, so take out an equity loan that gives you what you need in a lump sum.
You can refinance to a fixed rate 12 months after taking out the equity loan. (You will still need 24 months of payments or rental history when the new refinance loan is processed.)
Additional Information
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If you bought your home through a real estate company and the home was listed, some lenders have a restriction based on the time since the home came off the market, such as six months.
Because mortgages are sold on a secondary market, there may be a "recapture period" for the lender of three to six months. If the loan is paid off before the recapture period ends, the lender has to buy back the loan.
Check your promissory note or other documents before getting too involved in the mortgage process. Take your closed loan package to your lender and have them check to see if this issue pertains to you or if there would be any prepayment penalties.
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