Maybe you bought a second home during the pandemic as a way to escape during lockdowns. Maybe you bought one to rent out part-time for extra income in today’s uncertain economy. And with home prices growing so quickly, you may be wondering if you can refinance the mortgage on your second home for better rates and terms or to pull some cash out of that newly earned equity. How soon after buying can you refinance the mortgage of your second home?
Some loans – conventional, FHA, and VA – require a six-month waiting period before borrowers can refinance to pull cash out of their homes. Some do not have a time limit but getting a refinance on a second home is likely to have stricter requirements than a primary mortgage, so you may have to wait just to be able to meet those qualifications.
Because it isn’t secured by your primary residence, lenders consider a second home mortgage riskier than a first mortgage. If you fell on hard financial times, they assume you would put your resources toward your primary residence first, leaving the second home loan at greater risk of default. For this reason, the requirements for refinancing a second home are more rigid than a first home mortgage refinance.
The typical rule for refinancing a second property is that you leave at least 25% equity in your home at the close of the loan. This might determine how soon you can refinance your second home if you contributed less than a 20% down payment. It may take time to grow that stake in your property. However, because of the added risk, some lenders might even require that you leave even more than 25% equity in your second home after refinancing.
To give them more peace of mind that you can handle your refinance loan, lenders often like to see that you have at least two months’ worth of cash reserves to be able to cover your mortgage payment. If you do not already have this saved up, you may need to wait longer to refinance.
If your credit score has fallen since you got your second home mortgage, you may also have to wait to refinance until you can improve it. Most loans require a minimum FICO score of 620, but for second residences lenders sometimes require higher scores.
How long it will take before you can refinance your second home will depend on several factors, including how much equity you have and your personal financial picture. Contact us today and we can help you to determine when would be the ideal time to take that step.
These materials are not from HUD or FHA and were not approved by HUD or a government agency and in some cases a home equity or refinance loan might result in higher finance charges over the life of the loan.