How Soon After I Buy A House Can I Refinance?

Does refinancing your mortgage shortly after buying your home make sense? It could be a good idea if you’re looking to lower your interest rate or make your payments more affordable. But it’s important to know when it’s the right move and when it’s not. So before you jump into a mortgage refinance, it’s best to take some time to review your finances and figure out if refinancing works for your situation.

Reasons To Refinance Right After Buying

There are several reasons you may want to refinance soon after taking out your original mortgage, including:

Interest Rates Changed

One reason to consider refinancing is the chance to save money by qualifying for a lower interest rate. Switching your current mortgage to one with a lower rate can help you pay less over the life of the loan. You may also want to change from an adjustable-rate mortgage (under which payments can fluctuate yearly) to a stable fixed-rate loan, which can make budgeting more straightforward and save you money in the long run.

Unexpected Life Event

If something significant happens, like a divorce, you might refinance to take your co-signer or spouse off the mortgage. You could then refinance under your name alone or with someone else.

On the other hand, if you’re getting married and want to add your new spouse to the mortgage, refinancing can help with that too. Or, if you got your mortgage based only on your credit and income but now want to reapply with a co-signer, refinancing is worth considering.

Your Credit Improved

Lenders take a look at your credit score and other factors to determine the interest rate on your mortgage. If your credit has improved since you first got your loan, you might qualify for a lower rate now. In turn, this could help you save money throughout the loan term.

Reduce Your PMI

If you have a conventional mortgage and put down less than 20%, your lender will likely require you to pay private mortgage insurance (PMI). PMI helps protect the lender if you can’t make your mortgage payments. The good news is that if your home’s value has gone up significantly, refinancing might allow you to drop PMI and save money.

Access Your Home’s Equity

Whether it’s for a home renovation or to pay off debt, a cash-out refinance can give you access to additional money. It works by letting you borrow against your home’s equity and use the funds for whatever you want.

To qualify, you usually need to have at least 20% equity in your home. But if you didn’t make a big down payment or your home’s value hasn’t increased, you might not have enough equity to qualify.

Refinance Requirements By Loan Types

Mortgage refinance requirements usually depend on the type of loan you have and your lender. Here are some basic things you’ll need to know:

Conventional Loans

Conventional loans are one of the most common types. In many cases, you can refinance this type of loan right after closing. If there’s a waiting period, it’s usually about 6 months, but this is more common with cash-out refinances, where you borrow more by using your home’s equity.

To refinance a conventional loan, you’ll typically need a credit score of at least 620 and a debt-to-income (DTI) ratio of 50% or less to qualify.

FHA Loans

If you’re considering an FHA cash-out refinance, for example, to tap into your home’s equity, you’ll typically need to show at least 6 months of on-time payments.

For other FHA refinance options, like rate-and-term refinancing, the amount you can borrow typically depends on how long you’ve been paying your current loan. For an FHA rate-and-term refinance, you’ll usually need a credit score of at least 580.

VA Loans

If you have a VA loan, a VA Interest Rate Reduction Refinance Loan (IRRRL – usually called a VA Streamline) could help you lower your interest rate. To qualify, you’ll need to have made six straight monthly payments on your current loan. Additionally, at least 212 days must pass between your first payment on the original loan and closing on the VA Streamline refinance.

For a VA IRRRL, you’ll typically need a credit score of 580 or higher, with a maximum DTI ratio between 45% and 60%. Keep in mind, though, that requirements can vary depending on your lender and loan type. That said, make sure to check with your lender for specific details and eligibility rules.

USDA Loans

If you have a USDA loan, which is backed by the U.S. Department of Agriculture, you usually need to wait at least 12 months before refinancing. In other words, you’ll need to wait a year after closing to apply for a mortgage refinance.

Credit score and DTI requirements can also vary by lender. So it’s a good idea to check with your lender to find out what you’ll need to qualify.

Jumbo Loans

Refinancing a jumbo loan can be harder than refinancing a regular mortgage. Lenders usually require more paperwork and want to make sure your finances are in good shape before approving your loan.

Generally speaking, to qualify for a jumbo loan refinance, you’ll need a credit score of at least 680 and a DTI below 45%.

What To Know Before Refinancing

Refinancing soon after buying your home can be a smart move under the right conditions. With that in mind, here are a few things you should know before deciding to refinance right away.

Understanding Prepayment Penalties

Some mortgages might require you to pay a big lump sum if you refinance or sell your home within the first 3 to 5 years of your mortgage. If your loan has this rule, make sure to keep this payment in mind when planning to refinance.

Closing Fees

Just like with a regular mortgage, you’ll usually have to pay closing costs when you refinance. Closing costs are typically around 2% to 5% of your loan amount. For example, if you refinance a $200,000 mortgage, you might pay anywhere between $4,000 and $10,000.

You can usually either pay these costs upfront or add them to your loan and pay them off over time with the same interest rate as your mortgage.

Impact On Credit Scores

Refinancing can lower your credit score, especially if you do it soon after getting your first loan. When you apply to refinance your mortgage, the lender does a hard credit check, which can cause your score to dip a little. You might also see another small drop when the new loan is finalized.

If you refinance too soon after your first mortgage, your credit score may take a bigger hit. When you first apply for a mortgage, your score usually dips but bounces back after a few months. If you apply for another loan before your score has fully recovered, it could drop even more because of the new application.

Interest Rate Trends And Market Fluctuations

Since interest rates can fluctuate, it's important to keep an eye on them when deciding if refinancing is a good idea. If rates have dropped since you first got your mortgage, refinancing could lower your monthly payments and give you extra money for other expenses. Plus, you might save thousands of dollars in total interest over the life of your loan.

Market conditions also impact the value of your home. When home values go up, you will have more equity. But if they go down, your home might not be worth as much as you think. Many homeowners overestimate the value of their home when refinancing, which can often be disappointing. Keeping an eye on market trends and interest rates can help you decide if refinancing is the right move.

Long-Term Financial Considerations

When thinking about refinancing your mortgage, it’s important to look at the whole picture. You’ll want to consider costs, like closing fees, alongside the potential savings from lower interest rates or reduced monthly payments. If you don’t have a good amount of equity in your home yet, you might not qualify for the best rates, which can make refinancing less helpful.

Take the time to weigh the pros and cons and figure out if the savings will be worth the costs in the long run.

Preparing Your Finances To Refinance

No matter why you’re refinancing, there are steps you and your family can take to make the process easier.

Assess Your Credit Score

Your credit history plays a big role in whether you qualify for refinancing and what interest rates and terms you’ll get. That’s why it’s a good idea to check your credit report before applying. Reviewing your report can help you spot any mistakes or missing information so you can fix them ahead of time.

For a conventional loan refinance, you’ll usually need a credit score of at least 620. You can check your credit report weekly at annualcreditreport.com, where you can access reports from the three main credit bureaus: Equifax^®, Experian™ and TransUnion^®.

Review Debt-To-Income Ratio

Another important factor to review before refinancing is your DTI. This number shows how much debt you have compared to your income before taxes.

Lenders use your DTI to decide if you can afford the loan payments. Most loans require a maximum DTI between 36% and 50% to prove you can manage the monthly payments. If your DTI is high, it might be a good idea to take some time to pay down your debt. By reducing your debt, you can lower your DTI and improve your chances of getting approved.

Consider Current Budget

Think about whether you’re okay with your current monthly payment or if you’d like to lower it. Also, consider how refinancing could change your budget, like reducing your payments, adding closing costs, or restarting your loan term.

If refinancing ends up costing you more in the long run, it might not be the best move. That said, make sure to add up all the costs and savings to figure out if refinancing works for your financial goals.

The Bottom Line: Long-Term Strategies For Refinancing 

It’s possible to refinance your mortgage shortly after buying a home. But, before starting the application process, take time to understand your lender’s requirements and weigh the pros, cons and costs to see if it’s a good fit for your needs and budget.

Start by checking your credit score, credit history, income and assets. If your finances have had a few rough patches, work on improving them and getting back on track before applying to refinance. If your finances look good, start an application today with Rocket Mortgage^®.