Buy a House Now and Refinance Later: What to Know

Should You Buy Now and Refinance Your House Later?

For some, buying a home today may make sense even if mortgage rates are higher than they’d like. For others, waiting may be the better choice if today’s monthly payment doesn’t comfortably fit within their budget or if they’re unsure they’ll remain in the home long enough to benefit from refinancing.

Our home affordability calculator can help you get a better picture of what timing makes the most financial sense for you.

Questions to Ask Yourself Before Buying Now and Refinancing Later

If you’re deciding whether to buy a home now or wait, asking yourself a few key questions can help you determine if refinancing later fits your financial goals:

• Can I comfortably afford this mortgage payment today? Make sure your monthly payment is affordable based on your current interest rate—not one you hope to receive later.
• How long do I plan to stay in the home? The longer you expect to own the home, the more time you may have to benefit from refinancing if the opportunity arises.
• Would a lower interest rate make a meaningful difference? Consider how much refinancing could realistically reduce your monthly payment or overall borrowing and interest costs.
• If rates never decrease, will I still be happy with this purchase? Buying a home should make financial sense even if refinancing never becomes an option.
• Could my financial situation change before I refinance? Any changes to your income, employment, debt, or credit score could affect your ability to qualify for a new loan.

Pros and Cons of the Buy Now, Refinance Later Strategy

When weighing your options, consider the benefits and drawbacks of buying a home now with a plan to refinance later:

Buy Now, Refinance Later Advantages

Here are some potential benefits of buying now and planning to refinance at a later date:

• You don’t have to delay homeownership: Waiting for lower interest rates could mean postponing your homeownership goals indefinitely. Buying now allows you to begin building equity and enjoy the benefits of owning your own home.
• You may be able to lower your interest rate: Refinancing can help you secure a lower interest rate if market rates decline after you purchase your home. A lower interest rate may reduce your monthly principal and interest payment and substantially decrease the total interest you pay over the life of your loan.
• You can adjust your loan terms: Refinancing may also allow you to choose loan terms that better fit your financial goals. For example, you might switch from an ARM to a fixed-rate mortgage, change to a shorter loan term to pay off your home sooner, or extend your loan term to benefit from a lower your monthly payment.
• You may be able to access your home equity: If your home’s value increases or you’ve built enough equity through your mortgage payments, refinancing could allow you to use a cash out refinance to borrow against that equity for home improvements, debt consolidation, and other major expenses or financial goals. Because your home is collateral for the loan, the interest rate is often lower than other types of borrowing like personal loans or credit cards.

Buy Now, Refinance Later Risks

While refinancing later can be beneficial, there are also risks to consider first:

• Interest rates may not fall: Although you may hope rates will decrease after you purchase a home, there’s no guarantee that will happen. If rates remain the same—or increase—refinancing no longer makes financial sense.
• You may not qualify for refinancing: Even if interest rates decrease, you’ll still need to qualify for a new mortgage.
• You’ll pay refinance closing costs: Like purchasing a home, refinancing typically comes with closing costs. Depending on your loan and lender, these refinancing costs may include lender fees, appraisal fees, title services, and other expenses. Before refinancing, calculate your break-even point, which is the amount of time it takes for your monthly refinance savings to equal your refinance costs.
• Refinancing can affect your credit: Applying for a refinance generally requires a hard credit inquiry, which may temporarily affect your credit score. While the impact is often small, it’s another factor worth considering if you plan to apply for other types of financing around the same time.

Requirements for Mortgage Refinancing

Every loan and lender may have its own refinance requirements, and eligibility may vary depending on the type of refinance you’re considering. However, lenders commonly review several factors before approving a refinance application, such as:

• Your credit score and credit history
• Your income and employment
• Your debt-to-income (DTI) ratio
• The amount of equity you’ve built in your home
• Your loan-to-value (LTV) ratio
• Your recent mortgage payment history
• The home's value
• Whether the home is your primary residence, second home, or an investment property

If you’re considering refinancing in the future, get prequalified with Freedom Mortgage to better understand what you may qualify for.

Buying Now and Refinancing Later FAQs

There’s a lot to consider regarding the “buy now, refi later” strategy. Here are some common questions—and answers—that often come up to help you feel like you’ve got a good handle on this topic.

Can You Refinance Immediately After Buying a House?

It depends on the type of loan, your lender’s requirements, and the refinance program you're using. Some loans require a waiting period before refinancing, while others may allow refinancing sooner if you meet eligibility requirements.

Is It Better to Wait for Lower Interest Rates Before Buying a House?

Not necessarily. Because future mortgage rates are unpredictable, many buyers choose to purchase a home that fits their current budget rather than trying to time the market. You’ll build home equity (regardless of rates) and if interest rates decrease later and you qualify, saving money by refinancing may become an option.

Does Refinancing Always Lower Your Monthly Payment?

No. If you qualify for a lower interest rate or extend your loan term, refinancing may lower your monthly payment. However, if you choose a shorter loan term, your payment could also stay about the same or even increase. A shorter term may save money on interest and pay off your mortgage years sooner but could also have higher monthly payments. A longer term, even at a lower interest rate, may result in total finance charges being higher over the life of the loan.

Final Thoughts: Buying a Home Now, Refinancing Later

Buying a home now and refinancing later can be a smart strategy for some homebuyers, especially if mortgage rates decline after you purchase your home. However, refinancing shouldn’t be viewed as a guarantee or part of your original financing plan.

Instead, focus on purchasing a home that’s comfortably within your budget based on today’s loan terms. That way, if interest rates fall and you qualify for refinancing later, it can be an opportunity to improve your mortgage. Don’t make refinancing a necessity for making your monthly payment affordable in the long term.

If you’re ready to begin your homeownership journey, compare your mortgage options and apply to buy a home today.