How Long Does it Take to Refinance?

You bought a house, a few months go by and you find that the mortgage rates have dropped significantly. It goes through your head, "Will I be able to refinance?" But there are details that you should consider before taking this step. A reduction in your monthly payment should not be the only criterion to consider.

There are many different reasons someone may want to refinance their home loan. These reasons can include securing a better interest rate, receiving additional or better loan features, consolidating other debt or even accessing home equity. However, before deciding whether you should refinance or not, you should consider the potential costs involved that can include exit costs from leaving your existing lender as well as borrowing costs charged by your new lender. In this article, the mortgage experts from ClearPath Lending will walk you through the benefits and costs of refinancing, so you can understand whether refinancing is right for you!

How quickly you could refinance your home loan depends on the type of mortgage you have. There are lenders who may allow the homeowner to refinance shortly after purchasing his home, while others may have longer periods of at least six months.

A conventional mortgage backed by Freddie Mac or Fannie Mae would allow you to refinance your mortgage as soon as you have closed your house. Some mortgage lenders have a "maturity" period, which is a set amount of time you must wait before you can refinance your home loan. Either way, before requesting any type of refinancing, you should make sure that your current loan does not have a prepayment penalty.

To find out more about your refinance options, it is best to speak with your local ClearPath Lending broker, who can go through your situation and help you get the right deal.

In the case of government mortgage loans, they have different terms for refinancing, as the case may be.

1. FHA Loan: If you have a loan insured by the Federal Housing Administration and want to refinance for another FHA loan, you can do what is called a simplified FHA refinance. This has a waiting period of 210 days from the original loan closing date, but does not require another appraisal.

If you're interested in a cash refinance, where you get a new home loan for more than what you owe on your current mortgage and keep the difference, you should treat the house as your primary residence for at least 12 months.

2. VA Loans: If you have a loan backed by the Department of Veterans Affairs, you must wait 210 days or a period that means you were able to make six payments on your current loan.

3. USDA Loans - A loan backed by the US Department of Agriculture requires your payments to be made on time for 180 days prior to applying for refinance. Also, your existing home loan must have been closed 12 months before starting your USDA refinance application.

If you meet the pre-established time for your type of loan to be able to refinance, you should also consider that refinancing is the opening of a new mortgage, that is, you are opening a new loan. Technically, you are requesting a new loan to pay off the previous one, so you must also cover the closing costs of the mortgage that can be between 3% and 5% of the value of the home you are refinancing.

Contemplating this situation is important because it will also be a criterion that you should assess, in addition to finding a better mortgage interest rate. Keep in mind that when you opened your loan, you had to fork out a down payment and a closing payment. If you refinance and do not have enough equity to cover the mortgage closings, you would have to finance this cost within your monthly mortgage payments. That is, you would be paying interest on the mortgage closings.

You should value the amount of money you originally gave between down payments and mortgage closings to determine if the refinance is worth it. You have to contemplate that the difference in the payment of your monthly payments of your current mortgage and that of the refinancing manage to recover what you have initially paid.

Likewise, you must calculate the break even point on the time that you have already paid plus the new period that you are going to pay. You have to determine if the house is going to cost you cheaper with the refinance and the new interest rate, or all you are doing is spending more for a house. How long you have been with your mortgage is key to knowing if it is better to refinance.

ClearPath Lending, a nationwide mortgage lender from Irvine, Ca, provides multiple refinance products and options to its borrowers across the country with a specialty in VA, FHA, and conventional home loan products. If you are unsure if refinancing is the right decision for you give us a call at (855) 866-5363 and a licensed mortgage Loan Officer will answer any questions you may have.