When Can I Refinance
Before you can refinance, there’s sometimes a waiting period and lenders will say that your mortgage has to be “seasoned” for a certain amount of time. Seasoning simply refers to the age of your mortgage. Age requirements most often apply in cash-out transactions, but it may also apply in other areas, such as when you can have your equity recalculated based on a new appraisal.
In the following sections, we’ll go over how your options to refinance are impacted by how long you’ve had your current loan.
Cash-Out Timeframe
If you’re looking to take cash out, you have to be on the title of the property for at least six months if you have a conventional, jumbo or VA loan. If you have an FHA loan, the waiting period on a cash-out refi is one year.
On a rate/term refinance (taking no cash out of your equity), there’s no waiting period.
If you recently moved back into your former investment property, the FHA also requires you to prove you’ve lived there for at least a year. If you haven’t been back for at least a year, you can only do a rate/term refinance, and the maximum loan-to-value ratio (LTV) is 85%. In the case of a refinance, LTV is the ratio of the loan amount compared to the appraised value.
One thing to note is that if you inherited the property, there’s no waiting period necessary unless you had an FHA loan and rented the property out at any time since you inherited it.
Using a New Appraisal
If you’re looking to use a new appraisal to prove an increase in your equity that’s based on increased property value, there are special waiting periods involved depending on the type of loan you have.
If you have an FHA, a jumbo or a VA loan and you want a new appraisal to determine a value increase, you have to own the property a year before requesting the appraisal.
On agency loans from Fannie Mae or Freddie Mac, there is no specific timeframe you have to wait. The appraisal just has to be supported by changing market conditions and/or documented improvements made to the property.
Factoring in the Costs
Once you know what the costs are, it’s a matter of just doing the math. If you’re doing a rate-term refinance with the goal of lowering your payment, simply divide your cost to close the loan by the amount you’re going to save every month.
This will tell you the amount of time to stay in the house in order to break even on the deal. If you see yourself moving before you reach breakeven, refinancing may not be a great option.
As an example, if refinancing lowers your interest rate and saves you $50 per month on your payment, but it has $5,000 in closing costs, you would need to stay in the home 100 months – a little over eight years – to break even. If you were to move out before that point, refinancing isn’t right for you under the terms of that deal. It’s a matter of balancing the cost against both your plans for the refinance and your long-term goals.
Before you break out the slide rule, though, we can help you with this math problem. You can also speak with one of our Home Loan Experts at (949) 333-4636.
We also always encourage you to take the opportunity to speak with a financial advisor before making any big moves affecting your future monetary planning.