The waiting period depends on which type of refinance you want
You can refinance an FHA loan, but the timeline depends on whether you are doing a cash-out refinance (borrowing money against your home's equity) or a rate-and-term refinance (changing your interest rate or loan length without taking cash out). The FHA sets different rules for each.
For a rate-and-term refinance, you can refinance as soon as your loan closes — there is no mandatory waiting period. For a cash-out refinance, you must wait at least six months from the date your original FHA loan closed. Some lenders impose their own waiting periods on top of the FHA's rules, so ask your lender what their specific timeline is.
The reason for the six-month rule on cash-out refinances is that the FHA wants to prevent people from borrowing more than they can afford right after taking out their first mortgage. A rate-and-term refinance does not add new debt, so the FHA does not restrict the timing.
Key Takeaways
- Rate-and-term refinances (changing your rate or loan length) have no FHA waiting period and can happen as soon as your loan closes.
- Cash-out refinances (borrowing against your home's equity) require a six-month wait from your original loan's closing date.
- Individual lenders may have their own waiting periods that are longer than the FHA's minimum, so check with your lender before you start the process.
- Your home must have built up enough equity for a cash-out refinance to make sense, and you will pay a new FHA mortgage insurance premium.
Rate-and-term refinances have no waiting period
A rate-and-term refinance lets you change your interest rate, your loan length, or both — without borrowing additional money. Because you are not taking cash out, the FHA does not impose any waiting period. You can refinance the day after your original FHA loan closes if you want to, though most lenders will not process it that quickly in practice.
The main reason people do rate-and-term refinances is to lock in a lower interest rate if rates have dropped since they got their original loan. Refinancing from a 7 percent rate to a 5.5 percent rate, for example, can lower your monthly payment significantly. You might also refinance to switch from a 30-year loan to a 15-year loan if you want to pay off your home faster.
Keep in mind that refinancing means taking out a new loan, so you will pay closing costs again — typically 2 to 5 percent of the loan amount. You will also pay a new FHA mortgage insurance premium. The monthly savings from a lower rate usually need to be large enough to cover these costs within a few years for the refinance to make financial sense.
Cash-out refinances require a six-month waiting period
A cash-out refinance lets you borrow against the equity you have built in your home and receive the difference in cash. For example, if your home is worth $300,000 and you owe $200,000, you could refinance for $250,000 and receive $50,000 in cash. The FHA requires you to wait at least six months from your original loan's closing date before you can do a cash-out refinance.
The six-month rule is a safety measure. The FHA wants borrowers to demonstrate they can handle their mortgage payments before allowing them to take on additional debt. If you refinance too soon after buying, you might overextend yourself financially.
After the six months have passed, you can refinance for as much as 80 percent of your home's current value (some lenders go higher). You will need a new appraisal to determine what your home is worth, and you will pay closing costs and a new FHA mortgage insurance premium on the larger loan amount.
Some lenders have their own waiting periods
The FHA sets the minimum rules, but individual lenders can impose stricter requirements. Some lenders will not do any refinance — even a rate-and-term refinance — until you have been in your loan for 6 months or a year. Others may require you to have made a certain number of on-time payments before they will refinance you.
Before you start shopping for a refinance, call your current lender or a few other lenders and ask what their waiting period is. This is a straightforward question and they should give you a clear answer. If your lender has a longer waiting period than the FHA requires, you may be able to refinance with a different lender that has a shorter timeline.
You need enough equity and a good payment history
Even if you meet the waiting period requirement, lenders will look at other factors before approving a refinance. You will need to have built up enough equity in your home — typically at least 5 to 10 percent — though this varies by lender. You will also need a solid payment history on your current FHA loan, meaning you have made your payments on time.
Lenders will also pull your credit report and check your current debt-to-income ratio (the percentage of your monthly income that goes toward debt payments). If your credit score has dropped or your debt has increased since you got your original loan, a refinance may be harder to get approved for.
Your home will need a new appraisal, which costs $400 to $600 typically. The appraisal determines your home's current value, which affects how much you can borrow in a cash-out refinance and what your new loan amount will be.
FHA Streamline refinances have their own rules
The FHA offers a streamlined refinance program designed to make refinancing faster and cheaper. An FHA Streamline is a rate-and-term refinance that requires less paperwork and no new appraisal in most cases. You can do an FHA Streamline as soon as you have made six months of on-time payments on your current FHA loan — not six months from closing, but six months of actual payments.
Streamline refinances are only available if your current loan is already an FHA loan. You cannot use the Streamline program to refinance a conventional loan into an FHA loan. The main advantage is lower closing costs and a faster approval process, though you will still pay a new FHA mortgage insurance premium.
Frequently Asked Questions
Can I refinance my FHA loan if I am behind on payments?
No. Lenders require a clean payment history, typically at least 12 months of on-time payments. If you are behind, contact your current lender about loan modification options before pursuing a refinance. Modification can lower your payment without requiring you to refinance.
Do I have to refinance with the same lender?
No. You can refinance with any lender that offers FHA loans. Shopping around for the best rate and lowest closing costs is a good idea, since different lenders charge different fees and offer different rates.
Will I have to pay mortgage insurance again on a refinance?
Yes. Any new FHA loan comes with a new mortgage insurance premium. For most FHA loans, this includes an upfront premium (usually 1.75 percent of the loan amount) and an annual premium added to your monthly payment. The annual premium amount depends on your loan-to-value ratio and loan length.
What if my home value has dropped since I got my FHA loan?
A lower home value makes refinancing harder because you have less equity to work with. You may still be able to do a rate-and-term refinance, but a cash-out refinance would be limited. An appraisal will show your current home value, and your lender can tell you what options are available.
How long does an FHA refinance take to close?
A streamlined refinance typically closes in 15 to 30 days. A standard rate-and-term or cash-out refinance usually takes 30 to 45 days, depending on how quickly you provide documentation and how busy the lender is. Your lender can give you a more specific timeline once you start the process.