A good fit if
- Rates are lower than your current rate
- You want to remove FHA or private mortgage insurance
- You need cash for renovations, debt payoff, or investing
Probably not if
- You'll sell before you recover the closing costs
- Your current rate is well below today's rates and you only need a small amount of cash (consider a HELOC)
- Your investment loan has a large prepayment penalty
Types of Mortgage Refinance
- Rate-and-term: a new rate, a new term, or both, without taking cash out.
- Cash-out: a larger loan than you owe, and you receive the difference in cash.
- Streamline: FHA and VA borrowers can often refinance with less paperwork. See FHA loans and VA loans.
- Investment property: rental owners can refinance with a DSCR cash-out loan and no personal income documentation.
- Alt-doc refinance: self-employed homeowners can refinance using bank statements or a P&L instead of tax returns.
Reasons to Refinance
- Lower your rate when market rates have dropped or your credit has improved
- Remove FHA mortgage insurance by moving to a conventional loan
- Switch from an adjustable rate to a fixed rate, or change your term
- Take cash out for renovations, debt consolidation, or another property
- Remove a co-borrower, such as after a divorce
Does Refinancing Make Sense?
The quick test is the break-even point: divide your closing costs by your monthly savings to see how many months it takes to come out ahead. If you'll keep the loan longer than that, refinancing may make sense. Also consider the total interest over the new term, not just the monthly payment, and any points you pay. Read when refinancing makes sense.
Example: a refinance costs $6,000 in closing costs and saves $200 a month. Dividing $6,000 by $200 gives a break-even of 30 months. If the homeowner plans to stay at least three more years, the refinance pays for itself. Figures are illustrative only.
Cash-Out Refinance Requirements
- Equity: conventional and FHA cash-out loans generally allow up to 80% of the home's value on a primary home. VA cash-out can go higher for eligible borrowers. Investment properties typically allow less.
- Seasoning: many programs require you to have owned the home or held the current loan for a set time, often 6–12 months. Some DSCR lenders allow shorter seasoning.
- Credit and income: similar to a purchase, with documented income for conventional and FHA, or alternative documentation for Non-QM.
- Appraisal: usually required to confirm the current value.
If you have a low rate on your first mortgage, compare a HELOC, which lets you borrow against equity without replacing it. See HELOC vs. cash-out refinance.
Removing FHA Mortgage Insurance by Refinancing
FHA mortgage insurance often lasts for the life of the loan. If your home has gained value and your credit has improved, refinancing into a conventional loan with at least 20% equity removes mortgage insurance entirely. With less equity, you'd have PMI instead, which can be removed later. It's worth checking once a year if home prices in your area have risen.
Refinancing an Investment Property
Rental owners have two main paths. A conventional investment refinance uses your personal income and tax returns. A DSCR refinance qualifies on the property's rent, can close in an LLC, and doesn't count your other properties against you. Investors who bought with cash or a short-term loan often use a DSCR cash-out to pull their capital back out and buy the next property, the BRRRR approach. Investment cash-out loans usually allow less leverage than a primary home and may include a prepayment penalty.
How the Refinance Process Works
- Set your goal: lower payment, shorter term, cash out, or remove mortgage insurance.
- Review your options. I'll compare loan types and run the break-even math.
- Apply and submit documents.
- Appraisal and underwriting, unless your loan qualifies for a streamline.
- Lock and close. See how rate locks work. On a primary home, you have a three-day right to cancel after signing on most refinances.
Documents You'll Need
- Your current mortgage statement and homeowners insurance declarations page
- Income documents (pay stubs and W-2s, tax returns, or alt-doc for Non-QM)
- Two months of bank statements
- Leases or rent records, if refinancing a rental
- Photo ID
Refinance FAQ
How soon can I refinance after buying?
For a rate-and-term refinance, sometimes right away. Cash-out refinances and some loan types have waiting periods, often six months or more.
Will refinancing restart my loan term?
It can, if you choose a new 30-year term. You can also choose a shorter term to stay on track or pay off sooner.
Cash-out refinance or HELOC?
If your current rate is low, a HELOC lets you borrow without replacing it. If rates have dropped or you need a large amount, a cash-out refinance may be better. See HELOCs.
How much does it cost to refinance?
Closing costs commonly run a few percent of the loan amount, depending on the loan size, state, and whether you pay points. See closing costs explained.
Can I refinance if I'm self-employed?
Yes. You can use tax returns for a conventional refinance, or bank statements or a P&L for a Non-QM refinance.
Can I refinance a rental property without income documents?
Yes, with a DSCR loan, which qualifies on the property's rent. See the BRRRR cash-out guide.
Available for properties in California. Refinancing may increase total finance charges over the life of the loan, and taking cash out increases your loan balance. Not all applicants will qualify. Not a commitment to lend.