You Want To Tap Your Home Equity
If youve built up a significant amount of equity in your home and want to access a chunk of those funds to make home improvements, buy an investment property or consolidate high-interest debt, a cash-out refinance may be worth thinking about.
A cash-out refinance comes with a larger loan amount than your existing mortgage, so expect to pay higher upfront costs and potentially more in interest over your loan term.
How Often Can You Refinance An Fha Loan
For many loan programs, there is no limit to the number of times you can refinance your mortgage as long as you meet the loan eligibility requirements. At a minimum, homeowners will likely have to wait between 120 and 180 days from completing one mortgage loan closing and starting another mortgage loan process.
Types Of Fha Refinance Loans And Why To Refinance
Knowing you have the option to refinance an FHA loan, you may wonder if now is the right time. These are common reasons homeowners choose to refinance an FHA loan:
- Mortgage rates dropped recently
- The value of your home has gone up
- You may need the extra cash
- You would like to switch over to a conventional loan
- You could save money in the long run
The one you choose will ultimately depend on your goal and why you are looking into refinancing your home.
If your primary purpose is to lower your current monthly payments or to shorten your loan term, then FHA Streamline may be the better option. If you need the extra cash, an FHA Cash-Out would be a reasonable choice.
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Refinance Waiting Period By Loan Type
Now lets discuss specific refinance waiting periods by loan type and transaction.
If were talking about a standard conventional mortgage, such as those backed by Fannie Mae and Freddie Mac, you can refinance almost immediately if the new loan doesnt result in cash out.
In other words, if youre simply executing a rate and term refinance, where the interest rate and/or term of the loan changes, its generally fine to refinance right away.
But if you want to tap into your equity via a cash-out refi, there is a six-month waiting period.
This prevents borrowers from underpaying for properties and then immediately sucking out the equity at a new inflated price.
However, there are some exceptions, such as if the property was inherited or legally awarded via divorce, separation, etc.
Theres also the delayed financing exception, whereby a cash buyer can execute a cash-out refinance if they purchased the subject property within the past six months.
But really the homeowner is just getting their initial investment back, less any down payment requirement associated with the mortgage they take on .
When it comes to government loans, the rules are a little different.
If you want to do a rate and term refinance on one FHA loan to another FHA loan , the waiting period is 210 days and six monthly mortgage payments must have been made.
In essence, most borrowers will need to wait at least six months to go from one FHA loan to another.
Fha Cash Out Refinance Example
Below is an example of how an FHA cash out refinance will work. One of the variables that may differ for each person are the closing costs.
|Original Purchase Price
|Estimated Cash Out Amount
This is just one example and every scenario will be different. The closing costs will need to be calculated when you speak with one of our lenders.
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No Need To Worry About Refinancing Too Soon
Refinancing is worth it if you discover that you can save monthly or over the life of the loan.
Most mortgage shoppers arent at risk of refinancing too soon and can apply even shortly after their previous loan closes.
Check your refinance savings and dont miss out on lower housing costs.
Refinancing To A Conventional Loan
The biggest perk to choosing a conventional refinance over an FHA one is that you can avoid mortgage insurance entirely. FHA loans come with mortgage insurance premiums anywhere from 11 years to the entire loan term. With conventional loans, theres no insurance required as long as you own at least 20% of the home.
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Benefits Of Switching From An Fha To A Conventional Loan
There are two ways refinancing an FHA loan with a conventional loan can save you money on your mortgage insurance costs.
The first is that you can avoid paying a new upfront mortgage insurance premium . Most FHA homeowners will need to pay a new upfront mortgage insurance premium equal to 1.75% of the loan amount when they refinance with an FHA loan. Conventional loans do not have upfront mortgage insurance fees. As a result, you can avoid this cost if you choose a conventional loan rather than an FHA loan for your refinance.
The second is you may be able to stop making monthly payments for mortgage insurance. Current FHA homeowners need to pay monthly mortgage insurance premiums for at least 11 years regardless of the value of their homes equity. Private mortgage insurance may be required for conventional loan refinances. But you may be able to avoid paying for PMI too.
When you refinance with a conventional loan, you are only required to pay for private mortgage insurance if your homes equity is less than 20%. As a result, refinancing with a conventional loan might help you avoid mortgage insurance costs that you will have to pay if you were to refinance with an FHA loan.
When Can I Refinance An Fha Loan
If you currently have an FHA mortgage, depending on the refinance loan programs you choose, you will have to wait between six months to one year from your closing date to be approved for a refinance mortgage loan. Most lenders will not refinance a conventional mortgage that was issued in the past 120-180 days. Speak with a loan originator today to learn when you home can qualify for a refinance.
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Current Market Interest Rates
You can almost always save money by refinancing if interest rates are lower now than when you got your loan. Compare your current APR with market rates and see if youre overpaying for your loan.
You may be able to save even more if your credit score has gone up since you first got your mortgage. If you arent sure how rates in your area have trended, contact a local real estate professional or a Home Loan Expert.
Why Do You Need To Refinance Your Mortgage Right Away
- Interest rates went down considerably
- Your borrower profile improved dramatically
- You want a different loan product
- A life event such as divorce occurred
- You paid cash and want your money back
First lets talk about why someone would want to refinance their mortgage shortly after taking it out.
The most common and topical reason is because mortgage rates fell, substantially.
Its impossible to time the market and buy a home at exactly the right time when it comes to mortgage rates.
Ultimately, they might be low or high when you buy, and theres not much you can do about it if you need/want a home at a certain time.
The good news is you can always refinance your mortgage after the fact if rates improve enough to justify the move, assuming you qualify.
Another common reason to refinance rapidly is if your borrower profile improved dramatically.
Say you had marginal credit, but after six months of paying your mortgage and cleaning up your debt and other things, your scores jumped.
You now qualify for a lower rate and/or an entirely new loan product, such as a conventional loan as opposed to an FHA loan.
To that same end, you may have had a change of heart and want a product change, say from an ARM to a fixed-rate mortgage.
Perhaps you thought the 5/1 ARM was a good idea, then discovered you couldnt sleep at night. Maybe the 30-year fixed is the only loan program for you.
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How Soon Can You Refinance A Va Loan
VA loans are backed by the federal government in the form of the Department of Veterans Affairs. These loans provide unique privileges.
But they still have rules about refinancing: You have to have had your current loan for seven months before you can refinance or re-refinance. And the VAs streamline option is almost always the one to go for unless you want to take cash out.
How Can I Qualify For An Fha Refinance
To qualify for an FHA refinance, first you want to prepare documentation confirming you have successfully made all of your mortgage payments on-time for at least six months. Although some FHA refinance loans have credit score requirements as low as 500, most FHA homeowners who refinance in 2019 had a credit score over 600. Depending on the refinance loan you choose, you may be required to submit income verification. Three factors that could disqualify you from FHA refinance loan eligibility are bankruptcy in the last one to two years, foreclosure in the last three years and delinquency on student loans or income taxes.
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Respond To Your Loan Officer
This may seem obvious, but the more quickly you respond to your loan officer, the more quickly your refinance can close. This is especially true if they need additional documentation from you. The sooner you can provide them with that information, the sooner your loan officer can move the loan forward.
What Should I Consider Before Refinancing
While refinancing a mortgage loan can provide a lot of benefits, there are some things that could make you think twice about starting the refinance process:
- Loan costs: Mortgage loans, including refinance loans, typically include closing costs that can range from 2% to 5% of the loan amount. If your mortgage is $200,000, that’s between $4,000 and $10,000 that can eat into the potential savings or other benefits you’d get from refinancing. It’s essential that you take the time to calculate your potential savings from a refinance compared with the costs to close the loan.
- Other costs: If you’re refinancing your loan to get rid of one form of mortgage insurance, it’s possible that the new loan will require another form. Make sure you understand the terms of each mortgage type to get an idea of what your ongoing costs will be. Also, pre-payment penalties can make it difficult to get out of your original loan.
- : If your credit scores have changed since you got your first loan, it could affect your chances of getting approved for a refinance loan with more favorable terms. The same goes if your debt-to-income ratio âyour monthly debt payments relative to your monthly gross incomeâhas increased in the meantime.
There are many good reasons to refinance a mortgage loan, but carefully consider these things to make sure your reason is good enough.
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How Soon Can You Refinance An Fha Loan
Refinancing an FHA loan can be done at any time. The FHA doesnt have regulations regarding how long you must have the loan first. However, a lender may have some specific requirements. The most common requirement is to have the loan for at least 6 months. They call this seasoning. It gives the lender a chance to see that you can make the payments on time. It also depends on the type of loan you refinance into as you have choices. Here we discuss your options and what you need to know.
How Many Times Can You Refinance Your Home
- There generally isnt a limit in terms of number of refinances
- Can do it as long as you meet underwriting guidelines and applicable waiting periods
- Be sure to consider all costs involved and whether it actually makes sense
- You should have a compelling reason to refinance each time
- A refinance is a great financial tool but should be used sparingly
If youre asking this question, you might want to pump the brakes.
While lenders generally have no restrictions in terms of total number of refinances, it can be costly to serially refinance.
Sure, you can refinance your mortgage a second time, a third time, and so on.
But even if there arent any fees to refinance, each time you do it youre essentially restarting your loan, which pushes you farther from the finish line.
This means paying extra interest, even if the mortgage payment is slightly lower. As Ive said before, there isnt really a rule of thumb for refinancing.
It totally depends on your unique financial situation, and what your plans are for the home, your life, etc.
If mortgage rates keep dropping significantly year after year, sure, a refinance might be warranted to take advantage of the savings.
But if youre only shaving .25% or something minimal off your rate, do the math to see if it makes sense.
You should also have a compelling reason to go through with the refinance if you dont, maybe hold off and ask yourself whos really benefiting, the lender or you.
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When Should You Refinance Your Fha Loan
Another question you should ask yourself is when you should refinance your FHA loan. Just because you can refinance it after six months, does it make sense to do so?
Something to keep in mind is the cost of the refinance. Every loan costs money unless you negotiate a no-closing-cost loan. If you do that, though, the lender will charge you a higher interest rate, so the savings may not be as great.
Refinancing your loan after just six months gives you very little time to build up equity in the home. The only time it may make sense to refinance early like that is if interest rates drop significantly and you can use the FHA streamline program. Because the FHA streamline program doesnt require verification of your income, assets, credit score, or home value, there are fewer costs involved and its easier to get approved.
A good tool to use to determine if it makes sense to refinance is the break-even point. You can figure it out using the following formula:
Total closing costs/Monthly savings = Months to break-even
Typically, 36 months to break-even is the maximum you should allow. This means that it will take you up to 3 years to recoup the closing costs that you paid and start reaping the savings of the new mortgage. Even if you use the cash-out refinance option, you want to know the break-even point to ensure that it makes sense to tap into your homes equity.
Should You Refinance Your Fha Loan
Many refinancing options require you to have owned the home for a set amount of timeoften upwards of a year or longer. The more on-time payments you can show on the home, the more likely you are to qualify.
The best FHA mortgage lenders are the ones that offer the fewest fees and most repayment terms. If you dont have many options to choose from, cant secure a lower interest rate than what youre paying now or you dont have a way of paying off your loan sooner, you may not want to refinance your FHA loan.
Instead, take some time to improve your credit score and build up equity in your home. That way, youll be ready to get a lower rate and potentially tap into more of that equity.
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Benefits Of An Fha Refinance
- Lower monthly payment. If you took out your original FHA loan with a decent or poor credit score, you might not have gotten the lowest interest rate available. By building up a history of on-time payments, your credit score has likely increased. Refinancing with a higher credit score means potentially lowering your interest rate, which can lower your monthly payments.
- Remove mortgage insurance. If you have at least 20% equity in your home, refinancing into a conventional loan could remove mortgage insurancean additional fee on your home if you could not put 20% down when you first got the mortgage. This insurance benefits the lender in case you miss a payment. All FHA loans have mortgage insurance, though, so if you refinance with another FHA loan youll likely have to pay mortgage insurance.
- Cash out your home equity. Rather than take on a second mortgage to cover home improvement costs or pay down debt, you can cash out your homes equity via cash-out refinancing.
What Fees Will You Pay
loanDepot is not transparent with the fees it charges on its loans. Like with rates, youÃ¢ll need to contact the lender to see what rates might apply. Potential fees might include charges for underwriting, loan processing and required appraisals.
Keep in mind that if youÃ¢ve already taken out a mortgage with loanDepot, youÃ¢re eligible for its Lifetime Guarantee. Through this program, the company will reimburse your appraisal fee and waive its lender fees if you opt to refinance your mortgage with them.
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