Each mortgage lender has different guidelines for how soon you can refinance after building or buying a home. Some may offer a loan immediately while others will make you wait. In general, a lender will base the timeline of refinancing your loan based on the equity you have in the home instead of the length of time you’ve owned it.
The Home’s Equity
A pretty standard rule is that lenders don’t allow a cash-refinance until the home has been owned long enough to build the required equity to cover the home. Although many lenders will not make you wait before applying for a refinance to get lower interest or change payment terms, you will most likely have to get a new appraisal regardless of how long it was since the last one. An experienced, reputable contractor will be able to discuss options on how best to maximize your budget while adding the additional worth to your property.
Lender Risk
If you have a low loan-to-value ratio, a lender is much more likely to approve a refinance. Meaning, if the appraisal shows that the value of the home is more than the total you want to borrow, the chances of getting a refinance approval is high. If the case is that you have a high loan-to-value ratio and little equity in your home, you could still be approved, but a lender is going to charge a much higher rate.
Prepayment Penalties
The fact is that you will not always save money when you refinance, this especially goes for mortgage contracts which include prepayment clauses. In addition to paying the penalty, you’ll have costs built in with the new loan.
Closing Costs
Besides for the price or the home, closing cost will add quite a bit as well. This is the same for a refinance of a mortgage loan. There might be opportunities for getting fees waived when going with the same lender, although, there could be other upfront costs. You could end up getting a higher interest rate if you want to refinance a short-term mortgage loan.
All-in-all, make sure you do your research and crunch the numbers before attempting a refinance. Check and re-check everything, because rolling costs to refinance into your new loan will also always create a higher interest rate. If your goal is to lower your payments, the best bet is to discuss options with your lender before moving forward.
