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For first-time buyers — or anyone facing financial hurdles — getting an FHA loan can help make homeownership a reality. With insurance from the Federal Housing Administration, lenders can afford to offer loans with a lower down payment, lower closing costs, and less restrictive qualifying credit requirements.

But can you refinance an FHA loan? Yes, FHA loans are available for those looking to refinance an existing mortgage rather than take out a new one — whether or not that existing mortgage is itself an FHA loan. However, there are a variety of different ways to go about refinancing an FHA loan, and which is right for you will depend on your circumstances. Here’s what you need to know.

Understanding FHA Refinancing

Like any FHA loan, FHA refinancing loans are insured by the FHA — and therefore available with easier qualifying requirements and lower costs than other types of conventional loans may be. Refinancing your mortgage with an FHA refinance loan could help you save money on interest over time by scoring a lower rate, lowering your monthly payments, or even accessing cash by leveraging your home’s equity. And yes, you can refinance an FHA loan, or another type of existing home loan with an FHA refinancing loan. However, the specific FHA refinance requirements vary depending on your circumstances.

Types of FHA Loan Refinancing

There are four main options when it comes to FHA loan refinancing: Simple refinancing, Streamline refinancing, cash-out refinancing, and 203(k) refinancing. Which is right for you will depend on what kind of loan you have — and why you’re refinancing in the first place.

FHA Simple Refinance

FHA Simple refinancing is for those whose original home loan is an FHA loan. With an FHA Simple refinance, you’ll simply — as the name implies — refinance your home, using a new FHA loan to pay off the existing one, ideally with a lower monthly payment or interest rate to make it worth your while. You may also be able to switch between fixed and adjustable interest rates.

Unlike some other types of FHA refinancing, you won’t be able to access any cash using this type of refinance, so it’s not a viable option for homeowners attempting to leverage home equity to pay for other expenses. In addition, it has slightly stricter qualification requirements than FHA Streamline refinancing, which requires less credit documentation and underwriting. Although credit score requirements vary by lender, most FHA Simple refinance programs require a minimum credit score of 580.

FHA Streamline Refinance

The FHA Streamline refinancing option also follows the logic of its name: The underwriting and qualification process is less intense than other types of FHA refinancing. In addition, unlike the FHA Simple refinance option, a home appraisal is not required. You can also take out up to $500 in cash against your home equity with an FHA Streamline refinance loan.

To qualify for FHA Streamline refinancing, your original home loan will also need to be FHA insured, and payments must not be delinquent. The FHA also requires that the new loan result in a financial benefit for the borrower. Of course, you wouldn’t be going through the process and expense of refinancing if you had nothing to gain in the bargain.

FHA Cash-Out Refinance

FHA cash-out refinancing allows borrowers to leverage their home equity to take out cash that can be used for any purpose. To make this work, a new, larger loan is taken out, which is used to refinance the existing home loan — which need not be FHA insured — as well as to provide cash value.

Using an FHA cash-out refinance loan, homeowners may be able to lower their payments or interest rates while also accessing lump-sum cash that can be used for just about any purpose under the sun. Again, however, the underwriting and qualification process for FHA cash-out refinance loans may be more intense than Streamline loans — though a cash-out refi is still accessible to most borrowers with a credit score of 580 or higher and a debt-to-income ratio (DTI) of 43% or less.

FHA 203(k) Refinance

Finally, the FHA 203(k) loan, also known as rehabilitation loan, allows homeowners to take out money for the purpose of restoring, rehabilitating, or repairing their home along with purchasing it. FHA 203(k) loans can be used for an original purchase or a refinance, and homeowners with a non-FHA loan can apply for 203(k) refinancing, and may find FHA-insured rates are lower than those of other home improvement loans.


💡 Quick Tip: Lowering your monthly payments with a mortgage refinance from SoFi can help you find money to pay down other debt, build your rainy-day fund, or put more into your 401(k).

Comparing FHA Refinance vs. Conventional Loan Refinance

Why choose to refinance with an FHA loan rather than a conventional one? Or vice versa? There are pros and cons to consider either way you go. For instance, although FHA refinance loans tend to come with more accessible qualification requirements, some types are only available for those with existing FHA loans — and all of them require a mortgage insurance premium (MIP). The important thing is to consider all your options so you can make an informed decision. Let’s take a closer look.

Pros and Cons of Refinancing with an FHA Loan

While there are many benefits to refinancing with an FHA loan, there are some drawbacks to consider, too.

Pros of refinancing with an FHA loan:

•   Lower interest rates and down payments than some conventional refinancing options

•   Easier qualification process

•   Different options available, including cash-out options

Cons of refinancing with an FHA loan:

•   MIP (mortgage insurance premium) required on all FHA loans; conventional refinance loans will not require mortgage insurance if you’ve paid off at least 20% of your home’s value.

•   Some types of FHA refinance loans are only available to those with existing FHA home loans.

Differences in Requirements and Benefits

In addition to the pros and cons of FHA loan refinancing, there are also differences in the requirements and benefits for FHA versus conventional home refinancing loans. For instance, in most cases, FHA loans require a minimum credit score of just 580, whereas conventional loans might have a minimum credit score starting at 620 or higher.

And while FHA loans often come with lower interest rates, they always come with a mortgage insurance requirement — whereas conventional loans may not require private mortgage insurance (PMI), if you already own at least 20% of your home’s equity.

Finally, FHA refinancing loan options may be somewhat limited, depending on your existing home loan and your motivations for refinancing. Some types of FHA refinancing loans are only available to homeowners who already have an FHA-insured mortgage, which may make them inaccessible to other borrowers.

Eligibility and FHA Refinance Requirements

So, what does it take to secure an FHA home loan? While requirements vary by lender, here are some basic rules of thumb:

Qualifying Factors for Refinancing an FHA Loan

As mentioned above, certain types of FHA refinance loans are only available to those who already have an FHA-insured mortgage loan. In addition, only FHA loans that are not delinquent — i.e., you’re up to date on your payments — may qualify for refinancing.

Credit Score Guidelines

While FHA-insured loans tend to have lower minimum credit scores than conventional refinance loans, lenders do still have a minimum. In most cases, it’s 580—though specifics may vary by lender.

Loan-to-Value Ratio (LTV)

A home’s loan-to-value (LTV) ratio refers to what percentage of the home’s current market value you’re taking out a loan for. Ideally, those who are refinancing their homes have a lower loan-to-value ratio — meaning they owe less of their home’s total value than they did when it was first purchased. Still, the LTV is one factor lenders look at when qualifying borrowers for an FHA refinance loan; the lower your LTV, the better.

Employment and Income Verification

Lenders have a vested interest in making sure you’ll be able to repay your loan, so a lender will verify your employment situation and income before qualifying you for a new loan, whether you’re taking out an original mortgage or refinancing.

Debt-to-Income Ratio (DTI)

Your debt-to-income, or DTI, ratio refers to the proportion of your available income each month that goes toward existing debts. While FHA loans have a higher maximum DTI than other types — borrowers with DTIs as high as 57% may still qualify — some lenders may choose not to qualify borrowers with a DTI of 43% or more.


💡 Quick Tip: Your parents or grandparents probably got mortgages for 30 years. But these days, you can get them for 20, 15, or 10 years — and pay less interest over the life of the loan.

Specific Requirements for Streamline Refinance

For the FHA’s Streamline refinance program, certain specific requirements apply, including:

•   The existing mortgage must also be FHA-insured.

•   The refinance must result in a “net tangible benefit” to the borrower.

•   Only up to $500 may be taken out of the loan in cash.

•   In most cases, investment properties are ineligible.

Criteria for Cash-Out Refinance

In order to qualify for an FHA cash-out refinance, you’ll need:

•   To have lived in your home for at least 12 months

•   To own at least 20% of your home’s equity

•   A minimum credit score of 580

•   A debt-to-income (DTI) ratio of 43% or lower

Benefits of Refinancing an FHA Loan

What are the specific benefits of refinancing with an FHA loan? Here are just a few of the reasons people choose to take this route when refinancing a mortgage.

Lower Interest Rate and Monthly Payment

For most homeowners, the primary motivator for refinancing is to save money — either over the long term, by scoring a lower interest rate, or on a monthly basis by choosing a loan with a lower minimum monthly payment. In some instances, you may be able to achieve both goals with the same refinancing loan, particularly if your credit history has appreciably improved since you originally took out your mortgage.

New Loan Terms

Some borrowers refinance to give themselves more time to pay off their home loan with a longer term — or to accelerate their repayment process with a shorter term.

Equity Access with a Cash-Out Refinance

For most consumers, a home is the single most valuable asset they’ll ever purchase. Being able to access the value of that equity with a cash-out refinance option is another important motivator for those seeking to refinance, and FHA refinance loans can make that goal a reality whether or not your original loan is FHA-insured.

Avoid Private Mortgage Insurance (PMI)

For borrowers looking to avoid private mortgage insurance (PMI), take heed: Although FHA loans don’t require PMI, they do require mortgage insurance. The FHA-loan version is called MIP (mortgage insurance premium), and is required on all FHA loans.

Improve Financial Stability

For some borrowers, refinancing can improve overall financial stability by achieving any of the goals listed above — for example, freeing up more discretionary income each month with a lower monthly payment.

Steps to Refinance an FHA Loan

Seriously considering an FHA refinance loan? Here are the steps it takes to turn your ideation into reality.

1. Review Your Current FHA Loan

The first step in shopping for a new loan should always be to review your existing mortgage. After all, that’s the best way to understand what factors would make a new mortgage more favorable for your finances. If your original loan is not FHA-insured, note that you may not qualify for certain types of FHA refinancing loans.

2. Shop for Lenders and Offers

Next up: The actual shopping part. In order to ensure you get the best deal available, it’s worth asking several lenders for refinancing quotes, including a full amortization schedule. That way, you’ll understand exactly how much money you stand to save — or not — by choosing a specific lender.

3. Submit an Application and Required Documentation

Once you’ve settled on a lender, you’ll submit your application, including any required documentation (such as ID and income verification, including bank statements and tax forms). In most cases, this process can be done entirely online.

4. Go Through the Appraisal and Underwriting Process

As part of most refinancing processes, you’ll need to have your home appraised so the lender understands its current market value — and can use that value to calculate important aspects of your application, like the LTV. An underwriter will assess your holistic financial profile to determine whether or not you qualify for the refinance loan.

5. Close the Refinance

Finally, if the terms are favorable and you are approved, you’ll close the refinance loan. The new lender will repay your existing loan, and your new payments will be directed toward this new lender, using the new terms you’ve agreed to.

Tips and Considerations for FHA Loan Refinancing

Want to get the very best out of your FHA loan refinancing process? Here are some tips to help you get the most bang for your buck.

Evaluate Your Financial Situation

Refinancing isn’t right for everyone. In fact, in most cases, the FHA won’t even allow you to refinance with one of its loans unless it results in a net financial benefit for you, the borrower. You can take a few first steps to determine whether or not it will help before you ever get a lender involved.

Using a mortgage calculator, you can determine how much a lower interest rate would save you over time or how much a longer loan term would reduce your monthly payment. Keep in mind that refinancing isn’t free, so unless the savings are substantial enough to eclipse your closing costs, it may make more financial sense to keep your original loan.

Understand Closing Costs and Fees

Loans come with a variety of closing costs and fees, such as application fees, the cost of the appraisal, attorney fees, and more. These costs can add up to about 6% of your overall loan value, and though some of them may be able to be financed as part of your loan, they still have the potential to eat into any savings your refinancing loan might offer.

Time Your Refinance Strategically

When it comes to refinancing your mortgage, timing matters. For example, if interest rates are higher than when you took out your original loan, the timing might not be right. The same could be said if you’re planning on moving out of your home in the near future, in which case, you may not have enough time in the home left to break even on your closing costs.

Common Mistakes in FHA Loan Refinancing

Here are some common errors borrowers make when undergoing the FHA loan refinancing process.

Misunderstanding the Eligibility Criteria

Although FHA loans come with more accessible eligibility criteria than many conventional loans, they do still have standards. If your credit score is less than 580 or your payments are delinquent, you’re unlikely to qualify for an FHA refinancing loan.

Ignoring Closing Costs and Fees

As mentioned, closing costs and fees can really add up — so if you don’t take them into account when you’re considering a refinance, you may wind up with an unpleasant case of sticker shock.

Not Considering Long-Term Financial Goals

Refinancing your home, when done best, is all about saving money over time, which means having enough time for those savings to accrue. If you’re planning on selling your house and moving in three to five years, refinancing may actually end up being more expensive than staying with a higher-rate original loan. Additionally, if you’re refinancing primarily to lower your monthly payment and make ends easier to meet, don’t forget to keep your long-term finances in mind. It may not be worth the extra monthly money to pay thousands more in interest overall.

The Takeaway

FHA refinance loans are available for homeowners whose original loans are FHA-insured—as well as for those who have a conventional original mortgage. FHA loan requirements vary depending on which type of loan you’re considering, and may not be right for everyone. But if you can meet the qualifications and derive a solid financial benefit from an FHA refinance, it may be worthwhile to embark on the process.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

Can you refinance an FHA loan without an appraisal?

Yes — but only if you qualify for an FHA Streamline loan, which requires your original loan also be an FHA-insured loan.

What happens if your home’s value has decreased?

Even if your home’s value has decreased, you may still be eligible for a refinance loan through the FHA Streamline program. It all depends on how much you owe on your home and your other qualifying factors. (Keep in mind, too, that this program requires that your original home loan also be an FHA one.)

Can you refinance an FHA loan if you’re behind on payments?

No. All FHA loan refinance programs require borrowers to be up-to-date on their loan payments, with most including provisions that there must not have been any payments more than 30 days late within the last six months.

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Photo credit: iStock/gremlin

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.

Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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While it is possible to take out a Federal Housing Authority (FHA) loan to purchase a second home, it’s only allowed in a handful of specific scenarios. Many first-time homebuyers choose an Federal Housing Authority (FHA) loan because of its lower credit score and down payment requirements, so when they need to purchase a second home the natural instinct is to look at financing with a second FHA loan. Read on for more details on how FHA loans work and the few exceptions that allow borrowers to qualify for more than one at a time.

What Is an FHA Loan?

An FHA loan is a type of mortgage that’s insured by the federal government and issued by a lender. FHA loans were created in 1934 at the height of the Great Depression to make homeownership more accessible. Since the FHA assumes the risk in case of default, lenders are able to offer more favorable loan terms to borrowers who might not otherwise qualify for conventional home mortgage loans.

With an FHA loan, borrowers with credit scores of 580 or more may qualify for a down payment of 3.5% of the home purchase price. (Borrowers with credit scores between 500 and 579 will be required to put 10% down.) These FHA loan requirements are helpful for first-time homebuyers who haven’t built up their credit or borrowers with less savings to put toward a down payment. FHA loans are one of several options for low-income home loans so consider all your options, whether you are thinking about taking out a first or second FHA loan.

Borrowers must also get mortgage insurance with an FHA loan. FHA mortgage insurance involves an upfront premium and an annual payment that’s added to monthly mortgage payments. The upfront premium is equivalent to 1.75% of the loan, while the annual payment is calculated based on the loan-to-value ratio and loan terms.

Besides the purchase of a home, FHA-insured loans are also available for home renovations and refinancing an existing FHA loan.

Recommended: How Do FHA 203k Loans Work?

How You Can Get an FHA Loan for a Second Home?

It’s possible to get an FHA loan more than once. For instance, if you’ve sold a prior home and haven’t owned a home for three or more years, you’d qualify as a first-time homebuyer and be eligible for an FHA loan. (And if you have a conventional mortgage on your first home, you may be able to get an FHA loan for a second home provided your credit score is adequate and your budget can handle the cost of a second mortgage; you would also have to occupy the second home as your primary residence.)

Meanwhile, qualifying for a second FHA loan is more complicated. For one, the purchased property must become the primary residence for at least one borrower. This includes a requirement to occupy the property within 60 days and have it be their primary residence for at least one year. These occupancy requirements mean that an FHA loan can’t be used to buy vacation homes or rental properties.

Here are details on the exceptions that permit borrowers to get an FHA loan on a second home:

•   Relocation: If moving for employment-related reasons, borrowers who financed their current home with an FHA loan may qualify for a second FHA loan on a new home before or without selling their first property. However, to qualify, the job must be performed on-site and the new home must be located at least 100 miles away from the primary residence that was previously purchased with FHA-backed financing.

•   Increase in Family Size: Borrowers may qualify for a second FHA loan to purchase a larger home to accommodate their growing family. This is evaluated on a case-by-case basis but typically requires proof of an increase in legal dependents and having at least 25% equity in the home.

•   Vacating a Jointly Owned Property: Borrowers who are getting divorced or permanently vacating a home they inhabited with a co-borrower may qualify for a second FHA loan.

•   Cosigning: A borrower who cosigned an FHA loan but didn’t live in the property could qualify for another FHA loan to buy their own home.

Recommended: FHA Loan Mortgage Calculator

FHA Second-Home Requirements

For borrowers who can satisfy one of the exceptions outlined above, the next step is meeting financial eligibility requirements for a second FHA loan. With any loan, and especially a second mortgage, lenders will consider the borrower’s ability to afford monthly payments when determining if they qualify. FHA loans can allow a debt-to-income (DTI) ratio of up to 50%, meaning that half of a borrower’s income is going to debt payments. Lenders, however, may look for a lower DTI of 43%, accounting for the cost of both mortgages, to approve a second FHA loan.

Borrowers will need to meet FHA loan credit score criteria to determine whether they’ll need to put 3.5% or 10% down. Besides the down payment, lenders also factor in savings for covering closing costs and monthly payments.

Pros and Cons of Multiple FHA Loans

There are advantages and drawbacks to having FHA loans for borrowers to keep in mind.

Pros

•   A smaller down payment

•   No income limits

•   Lower credit score requirements

•   Can be used to purchase duplexes, triplexes, quadplexes, or condominiums

•   May have lower mortgage insurance premiums than private mortgage insurance

Cons

•   Loan limits of $472,030 to $1,089,300 for a single-family home, depending on the cost of living by state

•   May require an inspection and higher property standards

•   Can only be used for buying a primary residence

•   May require mortgage insurance for the life of the loan

Tips if You’re Considering Multiple FHA Loans

Consider these tips to be prepared to apply for a second FHA loan: To lower your DTI, you’ll either need to increase your income or lower your debt. Using your first home for rental income can demonstrate to lenders that you can afford having two mortgages. When evaluating debt, remember that established credit that’s in good standing is viewed more favorably than newer credit accounts.

Building more equity in the home you currently own is another option to help qualify for a second FHA loan. If possible, aim for at least 25% equity before applying for a second FHA loan, as this is the minimum required if you are citing an increase in family size as the exception.

The Takeaway

Can you get an FHA loan if you already have an FHA loan? Yes, but there are specific exceptions you’ll need to meet in order to qualify, and the new property must be used as a primary residence for at least one year. Not able to take out two FHA loans at once? Don’t worry. There are other options for borrowing that may suit your needs.

Looking for an affordable option for a home mortgage loan? SoFi can help: We offer low down payments (as little as 3% - 5%*) with our competitive and flexible home mortgage loans. Plus, applying is extra convenient: It's online, with access to one-on-one help.

SoFi Mortgages: simple, smart, and so affordable.

FAQ

What will disqualify you from an FHA loan?

Borrowers could be disqualified from an FHA loan based on a high debt-to-income ratio, poor credit, or insufficient funds to cover the down payment, closing costs, and monthly mortgage payment.

Can you qualify for FHA twice?

Yes, you can get a second FHA loan if you are relocating for a new job, move at least 100 miles away, have an increase in family size, or vacate a jointly owned property. Borrowers who previously co-signed on someone else’s FHA loan may also qualify for FHA twice.

What is the 100 mile rule for FHA loans?

The 100-mile rule allows borrowers to get a second FHA loan without having to sell an existing property with a FHA-backed mortgage if they’re moving for employment-related reasons or buying a new primary residence that’s at least 100 miles away.

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Photo credit: iStock/nazar_ab

*SoFi requires Private Mortgage Insurance (PMI) for conforming home loans with a loan-to-value (LTV) ratio greater than 80%. As little as 3% down payments are for qualifying first-time homebuyers only. 5% minimum applies to other borrowers. Other loan types may require different fees or insurance (e.g., VA funding fee, FHA Mortgage Insurance Premiums, etc.). Loan requirements may vary depending on your down payment amount, and minimum down payment varies by loan type.

^¹FHA loans are subject to unique terms and conditions established by FHA and SoFi. Ask your SoFi loan officer for details about eligibility, documentation, and other requirements. FHA loans require an Upfront Mortgage Insurance Premium (UFMIP), which may be financed or paid at closing, in addition to monthly Mortgage Insurance Premiums (MIP). Maximum loan amounts vary by county. The minimum FHA mortgage down payment is 3.5% for those who qualify financially for a primary purchase. SoFi is not affiliated with any government agency.

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

SoFi Mortgages
Terms, conditions, and state restrictions apply. Not all products are available in all states. See SoFi.com/eligibility-criteria for more information.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.


Third-Party Brand Mentions: No brands, products, or companies mentioned are affiliated with SoFi, nor do they endorse or sponsor this article. Third-party trademarks referenced herein are property of their respective owners.

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Refinancing student loans involves taking out a new student loan (ideally with better rates and terms) and using it to pay off your existing loans. Generally, the reason why people refinance student loans is to save money, although there are some additional benefits that come along with refinancing.

Refinancing private student loans can be an easy decision if your income and credit score can qualify for a lower rate than you got originally. You can also refinance federal student loans with a private lender, potentially at a lower rate. But doing so means giving up federal benefits and protections, so it’s important to weigh the benefits against the risks.

Here’s what you need to know about refinancing student loans so you can decide if this option is right for you.

Benefits of Refinancing Private Student Loans

Refinancing private student loans comes with a number of potential perks. Here are some reasons why you might consider a student loan refinance.

A Lower Interest Rate

One of the main reasons people refinance their existing student loans is because they can find a lower interest rate through a new lender. This can help you save money, potentially thousands over the life of your loan. It can also help you pay off your loan faster, or lower the amount you pay each month.

While student loan interest rates have been on the rise in the last couple of years, you may still be able to do better if your financial situation has considerably improved since you originally took out your student loans.


💡 Quick Tip: Get flexible terms and competitive rates when you refinance your student loan with SoFi.

Reduced Monthly Payments

Another reason why people refinance their private student loans is to lower their monthly payments. You can do this by qualifying for a lower interest rate. Or, you can do this by extending your repayment term. Generally, the longer the loan term, the less you pay each month. Just keep in mind that extending your loan term could cause you to pay more in interest over the life of your loan.

Consolidation of Multiple Loans

If your student loan debt is a messy mix of loans, it can be difficult to stay on top of your payments and track your repayment progress. In this scenario, refinancing can double as a form of debt consolidation and allow you to combine those different loans. Once you refinance, you’ll only have to deal with one loan (and one payment and one due date) each month.

Releasing a Cosigner

When students take out private student loans, they generally need a cosigner. These are usually family members or friends of the student, and they share legal liability for the loan.

If you originally needed a cosigner but are now in a financial position to handle your debt on your own, you might consider refinancing your private student loans. This will give you a new loan and, in the process, release your cosigner from liability for your debt. If you currently have a higher income or credit score than your cosigner, you might even qualify for a better rate.

Factors to Consider Before Refinancing

To determine if refinancing is the right move for you, here are some factors to consider.

Credit Score Requirements

Not every borrower is eligible for refinancing. To get approved, you typically need a credit score of at least 650. A score in the 700s, however, gives you a much better chance of qualifying.

Your credit score also helps determine your new interest rate. Generally, the better your credit score is, the more competitive your interest rate will be. If you can’t qualify for an attractive refinance on your own, you might want to recruit a cosigner who has excellent credit.

Financial Stability

A good credit score is one qualifier for a favorable refinance rate, but that’s not the full story. Lenders will generally look at a wide range of financial factors when determining your interest rate, including your annual income and your debt-to-income ratio (how much of your monthly income you currently spend on debts).

If all three of those financial factors have improved since you’ve taken out your private student loans, it can be worth shopping around for better terms. If, on the other hand, you don’t have consistent earnings and/or have a lot of credit card debt, you’ll likely want to wait until your situation stabilizes before looking into a refinance.

Recommended: Can You Refinance Student Loans More Than Once?

Length of Repayment Term

Refinancing allows you to alter your payment plan. Once you qualify, you can typically choose the new term of your loan, whether it’s five, 10, or 20 years. By setting a new repayment term, you can decide how quickly you want to pay off your loans.

You might choose a shorter repayment term to pay off your loan faster and potentially save on interest. Or, you might opt to go with a longer repayment term to lower your monthly payments. Keep in mind, though, that extending your term may mean paying more in interest over the life of the loan. It will also take you longer to fully pay off your loans.

When Refinancing Might Not Be the Best Option

Refinancing isn’t the right move for every borrower. Here are some scenarios where it may not make sense to refinance your student loans.

You Can’t Get a Lower Interest Rate

Before choosing to refinance, you may want to shop around and see what rates you can potentially qualify for.

Many lenders offer online prequalification where you can enter some information to receive a rate quote without having to submit an actual loan application (which results in a hard credit inquiry). Prequalifying lets you shop around for the personalized rates and terms so you have a better idea of what to expect if you were to refinance, without hurting your credit.

If you can’t get a better rate than you currently have, refinancing might not make sense, at least right now.


💡 Quick Tip: Refinancing could be a great choice for working graduates who have higher-interest graduate PLUS loans, Direct Unsubsidized Loans, and/or private loans.

You Have Federal Loans and Could See a Decline in Income

If you have federal student loans and think your income could drop, or you might lose your job, it’s generally not a good idea to refinance those loans. Doing so means giving up federal student loan relief options, such as deferment and forbearance, as well as government programs like income-driven repayment. These protections could come in handy should you run into any financial hiccups.

Some private lenders offer relief programs but they may not be as generous as what you can get with the federal government.

You Are on an Income-Driven Repayment Plan

Income-driven repayment (IDR) plans are one of the many benefits available to federal student loan borrowers. When you choose one of these plans, the amount you pay each month is tied to the amount of money you make, so you never need to pay more than you can reasonably afford. Generally, your payment amount under an IDR plan is a percentage of your discretionary income (typically 10% to 20%).

Under all IDR plans, any remaining loan balance is forgiven if your federal student loans aren’t fully repaid at the end of the repayment period (either 20 or 25 years).

If you are currently on one of these federal repayment plans and you refinance, your loan becomes a private loan and you lose access to IDR plans.

You’re Working Toward Student Loan Forgiveness

In addition to the loan forgiveness associated with IDR plans, the federal government offers other types of loan forgiveness programs, including Public Service Loan Forgiveness, which is for public-sector workers, as well as a separate program just for teachers. If you think you may benefit from any of these federal relief programs, it’s probably not a good ideal to refinance your federal student loans. Doing so will bar you from getting your federal loans forgiven.

The Takeaway

So should you refinance your student loans? The answer depends on your financial situation and repayment goals. Generally, refinancing your student loans makes sense only if you can qualify for a lower rate than you have now.

Looking to lower your monthly student loan payment? Refinancing may be one way to do it — by extending your loan term, getting a lower interest rate than what you currently have, or both. (Please note that refinancing federal loans makes them ineligible for federal forgiveness and protections. Also, lengthening your loan term may mean paying more in interest over the life of the loan.) SoFi student loan refinancing offers flexible terms that fit your budget.

With SoFi, refinancing is fast, easy, and all online. We offer competitive fixed and variable rates.

FAQ

Why do people refinance their student loans?

Often, people will refinance their student loans to get a lower interest rate, a lower monthly payment, or both. Refinancing can also simplify student loan repayment by replacing multiple loans with a single loan and just one monthly payment.

Why should you avoid refinancing student loans?

Refinancing generally doesn’t make sense if you can’t qualify for a lower rate. You’ll also want to avoid refinancing if you have federal loans and are using (or plan to use) federal benefits like income-driven repayment or student loan forgiveness. Once you refinance a federal student loan, you’ll no longer have access to these federal programs.

Why should private student loan borrowers refinance right now?

You might consider refinancing your student loans now if you are able qualify for a lower rate than you originally got. Refinancing also gives you the opportunity to change the terms of your existing loan, remove a cosigner, and simplify your repayment process by replacing multiple loans with a single loan.

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SoFi Student Loan Refinance
Terms and conditions apply. SoFi Refinance Student Loans are private loans. When you refinance federal loans with a SoFi loan, YOU FOREFEIT YOUR EILIGIBILITY FOR ALL FEDERAL LOAN BENEFITS, including all flexible federal repayment and forgiveness options that are or may become available to federal student loan borrowers including, but not limited to: Public Service Loan Forgiveness (PSLF), Income-Based Repayment, Income-Contingent Repayment, extended repayment plans, PAYE or SAVE. Lowest rates reserved for the most creditworthy borrowers. Learn more at SoFi.com/eligibility. SoFi Refinance Student Loans are originated by SoFi Bank, N.A. Member FDIC. NMLS #696891 (www.nmlsconsumeraccess.org).

SoFi Loan Products
SoFi loans are originated by SoFi Bank, N.A., NMLS #696891 (Member FDIC). For additional product-specific legal and licensing information, see SoFi.com/legal. Equal Housing Lender.

Non affiliation: SoFi isn’t affiliated with any of the companies highlighted in this article.

Financial Tips & Strategies: The tips provided on this website are of a general nature and do not take into account your specific objectives, financial situation, and needs. You should always consider their appropriateness given your own circumstances.

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