How Often Can You Refinance Your Home?

There is no limit to how often you can refinance a mortgage, but factors should be considered before doing so.

Refinancing your home can be a smart financial move, allowing you to potentially save money on your mortgage payments or access cash for other purposes. But how often can you actually refinance your home? Is there a limit to how many times you can go through the refinancing process?

Refinancing has become increasingly popular in recent years as interest rates have fluctuated and homeowners have sought to take advantage of lower rates. However, it's important to understand the rules and limitations surrounding refinancing to make informed decisions about your mortgage.

While there is no set limit to how often you can mortgage refinance, there are several factors to consider before deciding to refinance. It's crucial to understand the potential benefits and drawbacks of refinancing multiple times, as well as the impact it can have on your credit and overall financial situation.

So, if you're considering refinancing your home for the second, third, or even fourth time, it's essential to be aware of the key considerations and potential pitfalls.

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Is There a Mortgage Refinancing Limit?

Refinancing involves replacing your current mortgage with a new one. There isn’t a limit on how often you can refinance. You can refinance as often as you qualify — and that’s where you might run into challenges. 

Each time you refinance, you’ll need to go through a process that’s very similar to when you purchased your home. If your financial situation has changed, for example, you may have a more difficult time qualifying. 

Another consideration is that you pay closing costs each time you refinance, which can amount to 2% to 3% of your loan’s total cost. For a $150,000 home, that’s $3,000 to $4,500. While these costs can typically be rolled into your loan, it eats into the amount you might save by refinancing. 

Cash-Out Refinance Considerations

A cash-out refinance allows you to take out a new mortgage that’s higher than your mortgage balance. You receive the extra funds a few days after closing. 

You’ll need to think about equity. Your home’s equity is the value of your home less your mortgage balance. If you have a $100,000 mortgage balance on a home with a $150,000 value, you have $50,000 in equity. 

With most cash-out refinances you need to leave at least 15% equity.  If your home is worth $150,000, you’d need to leave $22,500 in equity. VA loan refinances don’t require you to leave any equity. 

Once you do a cash-out refinance, you’ll need to rebuild your equity before you can do another one. To do that, your home either needs to increase in value or you need to pay down your mortgage balance. 

So while it’s technically possible to do multiple cash-out refinances, it’s difficult to qualify multiple times. 

Calculate Your Refinance

Refinance Mortgage Lenders

Which lender should you choose for refinancing? Here are Benzinga’s top picks. 

How the Refinance Process Works

The refinance process is a lot like the home purchase process. After all, refinancing is replacing 1 mortgage with another, so lenders are going to look at the same factors. Depending on the type of mortgage you’re refinancing, you may qualify for a streamlined refinance, which are refinances that don’t typically require an appraisal. 

Here are the steps in a typical refinance:

1. Contact Lenders for Quotes

Every lender is going to have different rates, terms, and fees. It’s best to contact multiple lenders to compare the terms and decide which one is best for you. 

2. Decide on a Lender

Based on the quotes, choose the lender that offers the best terms and services. 

3. Submit Your Application

You’ll need to complete the lender’s application and submit supporting documents. Each lender will have its own requirements, but in general, you’ll need to provide:

• Your pay stubs from the last month
• Your W-2s from the past 2 years
• Your tax returns from the past 2 years
• Your bank statements from the past 2 months

4. Complete Your Appraisal

Lenders will typically order an appraisal, which is when a trained, independent professional evaluates the value of your home. The sooner your appraisal is completed, the sooner your lender can make a decision. 

5. Get a Decision From the Lender

Once it has all the information needed, the lender will decide whether to approve your application and what terms to offer. Lenders consider:

Your Credit Score

Your credit score is a 3-digit number that sums up your credit history. Lenders use your credit score to determine whether you qualify for a refinance and what interest rate to offer you. The higher your credit score is, the lower your interest rate will be. 

Your Debt-to-Income (DTI) Ratio

Your DTI ratio compares your monthly debt payments to your pre-tax income. Your monthly debt payments include your new mortgage payment, car payments, credit card payments and student loan payments. If you have $1,500 in monthly debt payments and $4,000 in income, your DTI ratio is 37.5%. Lenders typically require a DTI ratio of 50% or less. 

6. Close on Your Refinance

If you’re approved, the next step is closing. You’ll need to sign your loan documents and pay any closing costs that aren’t included in your loan. 

When Should You Refinance?

When is refinancing a good choice? You may want to refinance if:

Interest Rates Have Dropped

Even a small difference in interest rate can save you thousands over the life of your home loan. If it’s a big difference, that’s even better. If you purchased a home when interest rates were higher, you should definitely consider refinancing. 

You Want to Lower Your Payment

Maybe you started with a 15-year term but the payments are taking too big a chunk out of your budget. Maybe you’ve been paying on a 30-year mortgage, but your financial situation has changed and you want to start fresh with a new 30-year mortgage. Regardless of the reason, refinancing into a longer-term mortgage can lower your payments and give your budget some breathing room. 

You Want to Pay off Your Loan Sooner

Moving from a longer-term mortgage to a mortgage with a shorter-term can save you interest and allow you to build equity faster. If you’re able to handle the payments, this can be a good strategy for owning your home outright sooner rather than later. 

You Want a Different Type of Loan

Most borrowers who take out FHA loans pay for mortgage insurance for the life of the loan. Mortgage insurance adds to the cost of the mortgage and protects the lender — not you. Once you have 20% equity in your home, you may want to refinance from an FHA loan to a conventional loan. Conventional loans with 20% equity or more don’t require mortgage insurance, so you should come out of the transaction with a lower monthly payment. 

You Want to Cash Out Equity

A cash-out refinance allows you to walk away with some cash after closing. You can use the cash for any purpose, including making home renovations, paying for college expenses or consolidating debt. This option works best if you know exactly how much you need to borrow. If you need some flexibility, a home equity line of credit (HELOC) may be a better fit. 

Some mortgages have prepayment penalties. Review the terms of your current mortgage to see if there’s a prepayment penalty and what the terms are. Some prepayment penalties only last for the first 5 years, for example. 

Is Refinancing Right for You?

Refinancing could be the right move for you, even if you’ve already refinanced relatively recently. Keep in mind that you must pay closing costs each time you refinance, and those are substantial. The refinance needs to be worthwhile, even with the extra costs. 

A refinance should improve your financial situation in some way. It could help you:

• Lower the interest you pay.
• Have a lower payment that makes it easier for you to manage your finances.
• Pay down your loan faster.
• Pay off high-interest credit card debt.
• Finance home renovations without using high-interest credit cards or loans.
• Pay for college without taking out student loans.

Lenders typically offer several refinancing options. You may want to consider a few refinancing options as well as a few lenders. For example, you could compare an FHA refinance with refinancing into a conventional loan. Or you could compare financing into a 30-year mortgage with a 15-year mortgage. 

It’s tempting to focus on your monthly payment, but keep an eye on interest rates and fees as well. Homeownership and refinancing can be powerful financial tools, but you don’t want to set yourself back. Evaluate your options, talk with lenders, and do what’s best for you and your budget. 

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