Before the mortgage industry crash of 2007, a homeowner was able to refinance his loan before the ink dried on his mortgage notes. Since then, lenders have tightened up their guidelines on how soon a borrower can refinance a mortgage. Lenders determine a borrower's eligibility for a refinance by the reason for the refinance and/or the type of loan.

Secondary Market

Lenders sell their mortgages on the secondary market to government-sponsored enterprises, such as Fannie Mae and Freddie Mac. In order for a loan to be salable on the secondary market, it must meet all the guidelines set out by the prospective government-sponsored enterprise. According to Freddie Mac's Refinance Program guidelines to change the rate and lower the terms on a mortgage, the borrower must have been the owner of record for at least three months. For a cash-out refinance, at least one borrower must have been on the title to the property for at least six months prior to the note date of the cash-out refinance mortgage. Federal Housing Administration loans require 12 months ownership for all borrowers applying for cash-out refinance loans of more than 85 percent. Fannie Mae does not have any minimum ownership requirements on its limited cash-out refinance loans. Borrowers applying for a rate and term refinance are not subject to as many guidelines as those applying for cash-out refinances

Prepayment Penalty

Even if a borrower meets all the requirements of the government-sponsored enterprise, a prepayment penalty may prevent a customer from closing on a refinance. A prepayment penalty mortgage requires a borrower to pay a fee when he pays back the entire loan amount or a portion of it before the end of the loan term. Knowing the terms of your current mortgage prior to applying for a new loan will save time and money. A borrower can still refinance his mortgage but it may cost several thousands of dollars in penalty fees.

Equity

Unless a borrower has paid a substantial down payment, he will not have a great deal of equity in the property. Equity will begin to build up as the principal balance begins to go down. Making larger payments than your required monthly payments is a surefire way to build the equity rapidly. When payments are on time each month, your credit scores will increase allowing you to qualify for a lower interest rate. Although borrowers begin paying interest on their mortgages at closing, a payment toward the principal will not apply for up to 30 days. Reviewing your reasons for a refinance, the equity in the property and if there's a prepayment penalty will all be factors in determining if you should refinance shortly after purchasing the property or if you should wait at least six months before applying.

Source:

Freddie Mac: Freddie Mac Refinance Programs

Freddie Mac: Prepayment Penalties

Fannie Mae

More Information:

Ginnie Mae: FHA Refinance Programs Comparison Matrix

FHA: FHA Loan Articles