How soon can you refinance after buying a house?

Home equity is the greatest driver of wealth in the United States — one that wouldn’t be possible for most without the help of a mortgage. But if you just closed on your property and are already regretting the terms of your current home loan, you’re probably looking for a way out.

The good news is that you don’t have to wait to get a better mortgage. For those wondering just how soon after buying a house can you refinance, read on to understand your options.

What does refinancing mean?

When you refinance, you exchange your current home loan for a new one. The conditions of your new mortgage will depend on the type of refinancing you choose.

Rate-and-term change

This type of refinancing allows homeowners to replace the conditions of their mortgage with more favorable ones. In this instance, no money is advanced to the homeowner — only the interest rate, loan term length, or both are changed. This is a particularly good option for homeowners who are not able to make their current mortgage payments or who simply want to take advantage of lower interest rates.

Cash-out refinance

If you want to unlock the equity in your home without selling or taking out a second mortgage, a cash-out refinance is an option for you. 

Like a rate-and-term change refinance, a cash-out refinance pays off your previous mortgage and replaces it with a new one. Unlike a rate-and-term change, the homeowner takes out a new mortgage for more than they owe on their previous one. This balance is then advanced to the homeowner as cash to invest in their property or to use towards other expenses. 

How can refinancing help?

You don’t have to keep your mortgage until you pay it off. Refinancing is a valuable tool to help homeowners take control of their debt and make their greatest asset work for them. Here are some of the benefits of refinancing:

• Lower your interest rate: You may be able to lower your monthly mortgage payments by locking in a lower interest rate. Traditionally, refinancing has been recommended for homeowners who can reduce their interest rates by at least 2%, but some lenders recommend refinancing if you can lower your interest rate by just 1%. Use a mortgage calculator to see if the current interest rates are favorable.
• Access home equity: With a cash-out refinance, homeowners can use their home’s equity to get a cash advance from their lender. Use a home sale calculator to see how much equity might be locked up in your property.‍
• Shorten your loan’s term: Refinancing can be an opportunity for some homeowners to turn their 30-year mortgage into a 15-year one. If interest rates have dropped significantly or you can afford a higher monthly payment, make your pathway to debt-free ownership that much faster by shortening the term of your loan.

How soon can you refinance? 

If interest rates dropped dramatically or your home equity peaked shortly after closing on your mortgage, you may wonder, “How soon after buying a house can you refinance?” Many lenders have a six-month rule that prohibits refinancing within that time frame. 

However, an easy workaround for this rule is to refinance with a different lender than the one you used originally. 

Wait periods by loan type

Your waiting period may depend on the type of home loan that you have. Below are the waiting periods for the most common types of loans. If you’re unsure of what kind of loan you have, speak to your mortgage officer to help understand the type and terms of your loan.

• Conventional mortgage: Most conventional mortgages allow borrowers to refinance at any time if they are doing so to change the rate and terms of their mortgage. For cash-out refinances, borrowers will need to wait six months.
• FHA loan: If you have an FHA loan and want a rate-and-term change refinance, you will need to wait seven months after closing. For cash-out refinances, you will need to wait 12 months.
• VA loan: For VA loans, borrowers will need to wait 210 days or make at least six consecutive mortgage payments before refinancing, regardless of the type of refinancing.
• USDA loan: These loans require a waiting period of 12 months for all refinancing varieties.

Is refinancing right for me?

Refinancing is a smart decision for some but not all. Homeowners who recently closed on their mortgage might be hesitant to replace it with a new one, but if they can take advantage of any of the following benefits, it may be the right choice.

• Reduce monthly payments: Lower monthly payments means more money in your pocket. Whether you’re taking advantage of new interest rates or you’re leveraging a boost in your credit score to get better rates from your lender, refinancing can help you take control of your mortgage.
• Unlock equity: You don’t have to sit on your equity. A cash-out refinance is a great option to help homeowners make their mortgage work for them.
• Get rid of private mortgage insurance (PMI): If you had to take out PMI when you purchased your home, you might be able to lose that policy (and the monthly payment) by refinancing if you’ve accumulated at least 20% equity in your home.

Related: What is a mortgage recast?

Should I wait to refinance?

The opportunity to shorten a loan’s terms or lower its monthly payments is enticing, especially when you consider that most Americans’ most significant asset is their home, and the average mortgage typically amounts to a third of the people's income. If refinancing can make the pathway to debt-free ownership shorter and easier, everyone should do it — right?

Like all good things, the decision to refinance is not as simple as it might seem. Homeowners will have to weigh the potential benefits and costs of refinancing, especially if they recently closed on their mortgage. If you just bought a home and are wondering how soon you can refinance after buying a house, consider the following:

• Closing costs: It typically costs 2% to 6% of the total value of your loan to refinance your home. You’ll need to calculate if the new terms of your mortgage will make paying closing costs worth it, or if it makes more financial sense to stick with your original.
• Private mortgage insurance (PMI): If your home has declined in value by the time you apply to refinance, you may not have enough equity to satisfy the standard 20% down payment on your new mortgage. And if you can’t provide a larger cash deposit, you may need to purchase PMI, which will increase your monthly payment. You’ll have to factor the PMI premium into your calculations to see if refinancing will save you money.

Related: How to buy down your mortgage rate

Refinancing in review

If you recently closed on your home and are already looking to refinance, you may be in luck. Refinancing doesn’t have to take months, even if your mortgage has a prohibitory period for refinancing — working with a new lender is an easy way around this condition.

But even if you can refinance, stop and ask yourself if you should. Refinancing isn’t the right choice for everyone.

For those who intend to stay in their home for a while and stand to shorten their loan terms without raising their monthly payments and those who can get lower payments by locking in a lower interest rate, refinancing may be the right choice. But if refinancing wouldn’t radically change your path to debt-free ownership, or if you’re planning on moving soon anyway, refinancing might not be worth the closing costs.