Buy Now, Refinance Later for Free Mortgages
There’s a trend resurfacing in 2023, and it’s commonly called "Buy Now, Refinance For Free Later." No, that’s not a formal name, but it neatly describes what’s on offer with some financial institutions.
Buy Now, Refinance Later for Free: Options
The first thing to know is that this is not a standardized home loan option. You can walk into any lender and choose the refi option if it’s available. But not all lenders will choose to offer it.
It’s a bit like the FHA loan program itself, some lenders participate, and some do not.
Refinancing under typical circumstances requires the borrower to pay loan fees such as the lender’s origination fee. But if you get a “refi for free” option, you might avoid paying closing costs associated with the lender.
But that does NOT mean you won’t pay third-party fees for an appraisal where required. Any service provider that is not included as part of the free refinance offer may still charge you a fee. But that won’t stop many borrowers from exploring this option, nor should it.
Buy Now, Refinance Later for Free: Fee Caps
Some lenders may offer a “free” refinance but only up to a certain limit or cap. Be sure to ask the lender if this applies to your transaction. Will the cap be on the savings or the loan amount? Those are questions only your lender can answer as a specific program is dependent on that financial institution’s standards.
Buy Now, Refi Later for Free: Time Limits
Chances are good that your lender won’t offer a fully open-ended, anytime type of “free” refinancing. You may only have a limited window of opportunity to refinance. Some sources report three years or less may be typical depending on the lender.
There Is no Guarantee Rates Will Drop Within the Time Limit
If your lender approves a buy now, refinance later for free option and includes a time limit, there is no indication whether rates will recover sufficiently to justify your refinance loan at application time.
If rates don’t fall before your time limit expires, you may be stuck with the higher rates unless you refinance into an adjustable-rate mortgage.
Know What's On Your Credit Report
FHA Loans Have Credit Requirements
Help Is Available With Down Payment Grants
Do you know what's on your credit report?
Learn what your score means.