So you’ve already gone through the lengthy process of purchasing a home—including finding the perfect property, getting your loan approved, and transferring the title to your name. But now you’ve seen that interest rates have fallen and you’re considering a refinance to save yourself some money. There are plenty of times when refinancing may make sense, so let’s talk about how long it’ll take, what to expect when refinancing, and whether it’s the right option for you.
How Long Does It Take To Refinance a House?
The timeline for refinancing your house varies according to the lender. Depending on your bank, it can take anywhere from 30 to 120 days to complete the refinance. Different factors can also affect the length of time it’ll take, including loan complexity, whether you’ve got a second mortgage on the house, and how long it takes you to get your documents together.
According to the April 2021 Originations Insight Report, produced by ICE Mortgage Technology, the average time to close for all mortgage loans was 51 days. The average time to close for refinances was 53 days.
What To Expect When Refinancing
Since you’ve already gone through the financing process, this will likely look pretty familiar to you.
Shop for Lenders
Just as you did when you first bought your home, you’ll need to find the right lender for you. This can include shopping for different rates and figuring out which lender can best suit your needs.
Apply for Your Loan
In this step you’ll fill out the actual loan application. You’ll need to gather a variety of documents for this, including your paystubs, W-2s and 1099s, tax returns, and statements of assets and debts.
Get a Home Appraisal
The bank may request an appraisal for your current home. This can be important because the value of the home will determine what you qualify for regarding your new loan.
Get Final Approval
Once your documents are approved and your home has been appraised, your file will be returned to the underwriter. They’ll go through everything and make sure it’s ready to be cleared. If they need any additional information from you, they’ll let you know. Once everything has been deemed satisfactory, they’ll sign off and issue a final approval.
After everything is cleared, you’ll attend the closing for your new loan. You’ll need to visit the title office to sign your documents and your lender will pay off your original mortgage.
How To Speed Up the Refinancing Process
Four months may feel like a little too long for a refinance, especially if you’re in a hurry. Fortunately, there are ways to speed up the process.
Organize Your Documents
You should already have your important financial documents organized, but if you don’t—do it. Getting your income documents, debt and asset statements, and tax returns together before you begin the refinance process can help streamline the process.
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.
Keep It Simple
As you probably learned when first financing your home, any changes in your life can delay the loan process. This includes job changes, new credit cards, and even getting married. Avoid doing any of these things just before and during your refinancing application.
Streamline the Process
If you’ve got an FHA or VA loan, you may be eligible for a streamlined loan option. These loans aren’t eligible for cash out—which involves putting money in your pocket—but can apply when you’re simply looking to drop the interest rate or change the term length on your loan.
FHA loans can be refinanced under a series of terms: the loan must already be FHA insured, your loan must be in good standing, you cannot take out more than $500 from the loan, and the new loan terms must be favorable when compared to your old loan.
VA interest rate reduction refinance loans (IRRRLs) are another type of streamlined loan specific to VA-backed loan holders. In order to be eligible for an IRRRL, you must meet the following requirements: you already have a VA loan, you’re using the IRRRL to refinance that loan, and you can certify that you live or have lived in the home.
Should You Refinance Your Home?
Is refinancing your home a good idea? That depends. Refinancing isn’t free; there are costs associated with the process that you’ll want to consider before choosing to do so.
Depending on how much you’re saving each month, it may take a while for you to break even on your new loan.
You can calculate the break-even point by dividing the monthly amount you’re saving by the total cost of the refinance. For example, if your new mortgage payment saves you $100 per month, and your refinance costs $2,500 in fees, it will take 25 months for you to break even ($2,500/$100 = 25).
You Have High-Interest Debt
If you’ve accrued debt with high interest rates, like credit card debt, it may be a good idea to complete a cash-out refinance. The interest rate on your home loan will be lower than, say, an unsecured loan or a credit card, and you can use the money you’ve pulled from the home to pay off the debt.
Interest Rates Have Dropped
If you financed your home during a period when interest rates were high, it may make sense to refinance your loan. Dropping your interest rate can save you hundreds of dollars each month.
You Want a Lower Monthly Payment
If you find yourself struggling to make your mortgage payment, it may be a good option to complete a term refinance for your home. This will alter the remaining amount of time on your loan and can lower your monthly payments.
You Have an FHA Loan
If you originally purchased your home using an FHA loan, you’ll be paying something called a mortgage insurance premium. This is assessed on all loans and acts as insurance for the bank in case you default on your loan. Once you have 20% equity in your home, however, you can become eligible for a conventional loan and thus eliminate that premium by refinancing.
Frequently Asked Questions (FAQs)
How do I refinance a house?
You can begin refinancing a house by applying for a loan with your preferred lender.
How many times can you refinance a house?
There is no limit to the number of times you can refinance a house, although you must pay fees each time.
What credit score is needed to refinance a house?
Generally speaking, you’ll want to have a good credit score when trying to refinance your home. A good credit score is considered to be in the 670 to 739 range.
How long after buying a house can I refinance?
This varies by lender and loan—with some conventional loans you may not have to wait at all for a rate and term refinance. Some FHA, VA, and USDA loans have “seasoning” requirements that require you to wait for up to a year before refinancing.