Planning When and How to Refinance a VA or FHA Loan When Rates Drop

Hey guys, it's Jim Duffy here. And look, I want to talk about something very, very important today because it's going to happen in the near future. Anyone buying a home today is probably getting a rate in the high fours, fives, something like that, right? Because we know rates have gone up. We also know rates are going to go back down.

I think in the fairly near future, meaning nine to 36 months from now, sometime in there, we're going to see rates drop fairly dramatically. Which means if you're buying a home now and your rate starts with five, you'll very likely be able to refinance and have a rate that starts with four or very likely a three would be my guess, we'll see how that plays out. But the ability to refinance that makes sense for you is coming. So what's your waiting period for that? And that's the key.

I'm dealing with a couple of people right now who are refinancing because they're at a higher rate yet, and rates have dropped a little bit. They want to refinance and they can't. So here's the waiting periods in general, and I think this is important for planning purposes.

If you're in a conventional Fannie Mae type loan, there is no waiting period. You can refinance whenever it makes sense for you, right. But if you're in a VA loan or an FHA loan, both government insured loans, VA or FHA, the government wants to make sure that you are protected against churning your loan.

So what happened in the past is a lot of online lenders, especially it just happened to be, would try and churn these loans, these VA streamline loans, because they're very easy to do. And they're very profitable for the lender, we make pretty good money on those. And being so easy to do and profitable while a lot of lenders would churn and not save you enough money to really make it make sense.

But somehow with a sales pitch and making it look fancy, they would refinance this month and three months later, and three months later, and three months later and gaining fees for themselves and making a bundle, right? The government said, no, no, no, no, that's not good for veterans. And it's not good for homeowners who, a lot of times first time home buyers, are the ones who use an FHA loan to get into a home.

And I agree with them. I can't say I agree with everything the government does, but sometimes they get it right. And here I believe they did. And what it means is you can refinance doing a streamline of very simple, low documentation refinance from FHA to a new FHA loan lowering your payment, or VA to a new VA loan lowering your payment.

It's called a streamline refinance or an IRRRL, interest rate reduction refinance loan IRRRL. But you have to wait. You have to be in your current VA or FHA loan for six consecutive payments or 210 days. If you do the math that's seven months. Why seven months? Because you always skip a month's payment, right? Remember you pay mortgage, interest and arrears.

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So you skip that first month's payment, your first payment isn't due until a month later after you close on that home. So once you've made the sixth payment, if rates drop at that point and they drop from the low fives to the mid threes or something like that that makes perfect sense to refinance, let's do it.

Again, I only bring this up right now because yes, rates have gone up. Yes, interest rates are higher probably by the time you're watching this. Interest rates may still be higher than they were a year ago, but they won't be a year from now or a few months from now, right. So when the time is right to refinance, I want to help you refinance and save a bunch of money and let's do that together. But it does take planning sometimes. We'll plan it together.

If you're looking at refinancing and you're waiting for rates to drop, reach out because that's what we do. We keep a really good database of where everyone is our past clients, and we can include you in that. And then when rates do drop, we reach out.

But we also reach out at the right time when you're ready and we can actually meet the guidelines, and wait the 210 days, and then refinance. If I can help, I'd love to. Reach out, and really anyone in on the expert network is here to help as well. That's what we do. And that's what we're here to help you just make an educated decision and the right decision financially for yourselves as well. I'll talk to you soon.