How Soon Can I Refinance My New Mortgage

by Jack S.

Ask Kate how soon a new mortgage can be refinanced (seasoning requirements and Delayed Financing): Jack bought a new home with a 77 percent loan-to-value. His bank praised his qualifications. A month later, interest rates have dropped and Jack wants to refinance. He asks why his lender says no!


In addition to answering Jack, I've included Fannie Mae and Freddie Mac refinance seasoning requirements, including the Delayed Financing program for all-cash buyers.

Ask Kate: Locked Out of Refinancing My New Mortgage

By Jack S.
Mortgage Refinance Seasoning and Delayed Financing

Kate,

I'd like to take advantage of the recent drop in interest rates.

But I've been told most lenders won't take my application because I've only had my current mortgage for a few weeks even though I used the mortgage to purchase my home.

My loan was only 77% of the purchase price or what my loan officer called a 'vanilla' loan.

Anyway, I'm only interested in a lower rate and not looking to take money out by increasing the loan amount.

I'm at a loss to understand what's going on. Can you explain it to me? Thank you.

Ask Kate at Get-Your-Best-Mortgage-Rate.com
Kate's Answer: Locked Out of Refinancing My New Mortgage

Hi Jack,

Conventional seasoning requirements determine how soon a mortgage can be refinanced. But you may be wondering why lenders impose seasoning requirements.

One major reason is to prevent real estate flipping, the practice of buying a property and selling it quickly for a large profit. Seasoning also allows lenders enough time to obtain a borrower's payment history.

But you should also know that lenders can incur a penalty when a mortgage loan is paid off before 4 to 6 monthly payments have been made by the borrower, depending on the lender's contract. The fear of penalty could be affecting their answer to you.

Cost of Refinancing vs Extra Principal Payments

Before I get to the seasoning guidelines, I'll insert one concern. Please consider whether you should actually refinance your mortgage. I urge you to compare the cost of refinancing to the monthly savings, especially taking into consideration the closing costs.

Don't forget about the option of making additional principal payments to reduce your balance more quickly. Although you wouldn't get a lower interest rate, your equity would be left in tact by avoiding closing costs.

Read more at Pay Off Mortgage Early vs Refinancing.

Now let's take a look at seasoning requirements for mortgage refinance based on Fannie Mae and Freddie Mac guidelines. It is important to note that other guidelines may apply which restrict a borrower's ability to refinance in spite of meeting seasoning requirements, for example, appraised value, loan-to-value, 2nd liens, payment history, specific loan program, outstanding real estate taxes, etc.

Fannie Mae Refinance Seasoning Requirements

No Cash-Out Refinance: For borrowers like you who only wish to refinance the current balance of their loan, Fannie Mae has no seasoning requirements.

Cash-Out Refinance: For borrowers who want to extract cash from their equity or finance a home owned free-and-clear, at least one borrower must have been on the title for 6 months or longer. (See Delayed Financing below.)

Delayed Financing: Home buyers who decide to pay cash for a house, perhaps because it needs extensive repairs, are free to get a cash-out mortgage immediately. Fannie Mae began this program, Delayed Financing, in 2011 to encourage the sale of rundown properties.

Homeowners who paid cash (not a gift) for their home and can demonstrate the sale, as well as source of their cash used in the purchase, are eligible to apply. The mortgage balance will be limited to the original cost of the home.

Also important to note, the house could not have been purchased from a relative or other interested party. This refers to a non-arm's length transaction. Go here to read more about Non-Arms Length Transaction Home Loan Help.

Special Purpose Cash-Out Refinance: When an owner is buying out the interest of another owner (think divorce), they must have jointly owned the house for 12 months or longer.

Freddie Mac Refinance Seasoning Requirements (New as of September 2015)

No Cash-Out Refinance: For borrowers, like you, who only wish to refinance the current balance of their loan, Freddie Mac has no seasoning requirement.

Cash-Out Refinance: For borrowers who want to extract cash from their equity or finance a home owned free-and-clear, at least one borrower must have been on the title for 6 months or longer.

Special Purpose Cash-Out Refinance: When an owner is buying out the interest of another owner (think divorce), they must have jointly owned the house for 12 months or longer.

Lender Overlays

It is also worthwhile noting that lenders have the right to add their own restrictions on top of Fannie Mae and Freddie Mac guidelines. This is why shopping for lenders and asking qualifying questions is so important.

While you may get a no from one lender, another may say yes. Go here to learn more about Infuriating Lender Overlays.

Best wishes,

Ask Kate

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