How Long Does It Take to Refinance a House?
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If youโre like many homeowners, a sizable percentage of your budget goes toward your home loan each month. A mortgage refinance could help make those payments more manageable by lowering your interest rate, changing your loan term, or eliminating mortgage insurance. You could also tap your home equity with a cash-out refinance, which lets you borrow more than you owe while pocketing the difference.
Whether youโre looking for the best mortgage refinance ratesโor the best cash-out refinance mortgagesโitโs helpful to know how long the refinance process might take. Hereโs what to expect, plus some tips to ensure that all goes as smoothly as possible.
A refinance replaces your existing loan with a new mortgage to save money, make your monthly bills easier, or access the equity in your home. Hereโs a look at the most common reasons to consider refinancing:
Applying for a refinance is similar to obtaining a purchase mortgage. While the process varies by lender, here are the general steps.
A strong credit score helps you qualify for the lowest interest rates and fees. Itโs a good idea to check your credit early so you have time to fix any problems before applying. You can request a free copy of your credit report every 12 months from each credit reporting company at AnnualCreditReport.com.
Your lender will ask for various financial documents, including:
Rates and terms vary, so comparing quotes from at least three lenders is advisable. Consider the closing costs (such as application, appraisal, attorney, and title search fees), which can run from 2% to 6% of the loan.
Mortgage calculators like this one can also help you determine if refinancing will save you money.ย
Depending on the loan type, youโll need a home appraisal to confirm your homeโs value and set the new loan amount. If you have an existing government-backed mortgage, you might be able to skip the appraisal by using a Federal Housing Administration ( FHA) streamline refinance, a VA interest rate reduction refinance loan (IRRRL), or a U.S. Department of Agriculture (USDA) streamlined assist refinance loan.
The final step is to sign the paperwork and pay the closing costs. If itโs a cash-out refinance, youโll get your money three days later. The right of rescission gives you three days to cancel the loan if you change your mind.
A refinance usually takes about 30 to 45 days to complete, though the exact timeline depends on your situation and the type of loan you apply for. For example, a streamlined refinance doesnโt require income verification or an appraisal, which can speed up the underwriting processโand get you to the closing table faster.
Several factors can delay the process, including some that are out of your control.
While delays are unavoidable in some situations, you can take steps to ensure the process goes as smoothly as possible.
While each lender has different requirements for refinancing, here are some general guidelines from Quicken Loans.
Conventional | FHA rate and term refinance | FHA streamline | VA rate and term refinance | VA streamline (IRRRL) | Jumbo | |
---|---|---|---|---|---|---|
Minimum credit score | 620 | 580 | 580 | 580 | 580 | 680 |
Maximum DTI | 50% | Varies | 37% to 47% | 45% to 60% | 45% to 60% | 45% |
Max LTV | 75% to 90% | 80% to 97.75% | Varies | 100% | 100% | 70% to 89.99% |
Appraisal | Yes | Yes | No | Yes | No | Yes |
Income verification | Yes | Yes | No | Yes | No | Yes |
Cash | Money for closing costs | Money for closing costs | Money for closing costs | Money for closing costs | Money for closing costs | Money for closing costs + cash reserves |
To decide whether refinancing your home is a good idea in the first place, figure out your break-even point. A break-even point is how long it takes to recoup your refinancing costs and start saving money on your loan. To calculate the break-even point, divide your closing costs by your expected monthly savings. For example, if your closing costs are $6,000 and you save $200 a month by refinancing, it would take 30 months ($6,000 รท 200), or two-and-a-half years, to break even.
Refinancing makes financial sense if you plan to stay in the home beyond the break-even pointโ30 months in our example. However, if you intend to sell your home, refinance it again, or pay down your mortgage before the break-even period ends, you wonโt recover what you spent refinancing the loan. In that case, you might consider delaying or skipping refinancing altogether.
Mortgage refinancing typically takes 30 to 45 days, though it can take more or less time, depending on your situation.
Refinancing can temporarily lower your credit score by a few points because lenders will make a hard inquiry on your credit report. You can minimize the impact by submitting all your loan applications within a short period: Multiple loan inquiries made within a 14-to-45โday period usually count as one inquiry.
Your credit score may also take a hit because youโll close out a long-standing credit account (your current mortgage) when you refinance. Still, your credit score should improve as you make on-time payments on the new loan, provided everything else in your credit report remains positive.
One reason to refinance your mortgage is to change the loan term. Refinancing from a 30-year loan to a 15-year loan should save money in the long run. Shorter mortgages tend to have lower interest rates, and youโll pay interest for fewer years.
However, your monthly payments will be higher because youโll have less time to repay the loan. Use a mortgage refinance calculator to determine if it makes financial sense to refinanceโand be certain you can comfortably afford the higher payments.
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