How soon after refinancing can I buy another home?
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With mortgage interest rates at near-historic lows, it’s no wonder homeowners across the country are refinancing their primary homes at lightning speed. After all, who wouldn’t want to pay less every month for the money they borrow? But, what if you’ve recently refinanced your primary home and then come across that can’t-live-without-it second home? Or maybe you did a cash-out refinance to pull equity out of your primary home in order to make the down payment for a second home purchase. Can you really apply for a mortgage immediately after refinancing? There are two key factors to consider related to timing.
Waiting until your refinance closes
If you’re refinancing your primary home to take cash out for a down payment on a second home, you’ll need to wait until the refinance closes to access your funds. Typically, a cash-out refinance takes between 35-45 days to complete, depending on factors like how busy your lender is and whether an inspection or appraisal requirement slows things down. Once you have cash in hand, you can move forward with purchasing your second home, but there’s one other factor at play: your credit score.
Waiting so you can protect your credit score
While the long-term benefits of refinancing include a lower interest rate, more manageable monthly payments and access to the cash you need to purchase a second home, your credit score may take a temporary hit during and after the refinancing process. Here’s why: In order to obtain a refinance for an existing loan, your prospective lender(s) will run a credit check. The check they run is known as a hard inquiry and it can cause your credit score to drop temporarily. Once your refinance has closed, your previous mortgage lender will close out your old account — after all, your account is paid off! But some credit scoring models will penalize you for closing longstanding accounts. Don’t worry, though. It’s only a short-term issue. As you begin making on-time monthly payments on your new mortgage, your score should recoup. If you’re concerned about the effect your credit score will have on your interest rate and want to ensure you get the best rate possible on your second home loan, it can be wise to wait a few months after your refinance to give your credit score time to bounce back.
Buying a vacation home after a refinance
Homeowners with at least 20% equity in their primary residence, a credit score of 620 or higher, and a debt-to-income ratio of 50% or less will likely find they have an easy path to completing their refinance. And with cash in hand, that vacation home may finally be within reach! But if you’re debating whether the financial burden of owning a second home will be too high, or if your budget won’t allow you to purchase the luxury home you’ve been dreaming of, consider Pacaso co-ownership. Pacaso buyers enjoy all the benefits of owning a second home without all the financial burden. With Pacaso, you buy a ⅛ to ½ share with just a 30% down payment, which may allow you to avoid taking out a loan. If you do need to finance your co-ownership share, Pacaso allows qualified buyers to finance up to 70%.
Rent, co-own or buy a whole second home: What’s right for you?