Why would you refinance when your home is on the market?
There are several reasons you might refinance while your house is listed for sale.
Maybe you’ve have moved out and are carrying two mortgages, or your home has been on the market longer than you thought it would. You might have an ARM loan that’s about to reset. You’re having doubts your home will sell and want a better mortgage interest rate or terms.Verify your new rate (Sep 22nd, 2020)
Can you refinance once you list your home?
The quick answer is “yes, ” but it won’t be easy. You can refinance while your house is listed for sale, but you’ll have to take your home off the market. And you may have to keep it off the market for some time. Here’s what else to consider and how to get your refinancing done.
Lenders will be leery
Selling your home too soon after getting refinanced means lenders won’t generate the profit they typically do from interest. They need you to keep the loan for a minimum number of months or years, or they lose money.
If the kender sells a loan to investors, and you pay it off right away, the lender may have to buy the loan back. If the lender incurs upfront costs to originate your loan, and then earns only a couple of month’s interest, it will probably lose money.
No one goes into business to lose money, and mortgage lenders are no exception.
Lenders also worry about the possibility that you’ll default. Red flags include:
- Your house being listed longer expected when you canceled the listing
- Moving to a new home with a much lower mortgage or to other cheaper housing
You look like a future motivated or distressed seller to lenders, making them wary you’ll sell right after refinancing, or worse, default.
Slick moves backfire with lenders
Lenders are on guard; they’re watching your every step, so don’t misrepresent any facts about your refinancing intentions.
Most lenders have their own rules about who they refinance and under what circumstances. But generally, guidelines are similar to those of Fannie Mae and Freddie Mac, corporations that buy mortgages from lenders and sell them to investors.
You must cancel your listing before refinancing. Still, many lenders won’t consider your refinance application if your home was on the market in the last three to six months. And they will find out, because they will have your home appraised. Appraisers have to check MLS and reveal that listing in writing as part of the refi process.
You also can’t try refinancing your home as a primary residence if you’ve turned it into a rental property. You’ll have to refinance it as an investment property. The good news is that you can use the rental income to qualify for the mortgage. the bad news is that rates and costs are higher.
Putting the house right back on the market after refinancing suggests to lenders that you intended to sell when you refinanced. Under most programs, that’s not allowed. For instance, under FHA rules, you have to sign a document stating you plan to stay in the house for at least a year after refinancing.
Lenders audit loans after closing ,so attempts like these might set you up for a fraud charge that land you in civil or criminal court. That will cost you far more than any refinancing saving you got.
Evaluate refinancing costs
If you refinance, you do need to keep the home off the market in most cases. However, some lenders will refinance you if you choose a loan with a prepayment penalty. In that case, you may be able to sell any time, but you’ll have to pay for the privilege.
Prepayment penalties can range from six months’ interest to some percentage of the loan amount. That’s a consideration if you plan to put your home back on the market.
And refinancing isn’t free. If you don’t expect to keep the home for long, a “no-cost’ refinance with a higher interest rate may make more sense than an expensive loan with a lower rate. And ARMs like the 3/1, with a rate fixed for three years, can make sense and save you money.
How to get lenders to refinance your house
You’ll have some convincing to do, but if you do it with the right motives, you should get your refinancing. If you’re still living in your house as your primary residence, here are some steps to take.
Cancel your listing right away
If your listing is a For Sale By Owner (FSBO), and not listed on the local Multiple Listing Service (MLS), that’s often as easy as plucking the “For Sale” sign off the lawn. But, if your property is listed on the MLS, you’ll take a few extra steps.
Provide written notice to the agent (or service you used to get the home on the MLS) that you’re canceling your contract and listing. be sure to indicate that your reason for cancellation is that you have decided to keep living in your home.
Get multiple copies of that letter for lenders, with original signatures on each. It’s also smart to get a letter from your agent confirming you’ve terminated the sale and providing proof of MLS delisting.
Put it in writing to the lender
Write a letter or get a notarized affidavit stating you’ve taken your house off the market. State in the document you’ll stay in your home at least a year after refinancing.
Be ready to accept a prepayment penalty if you don’t keep the loan for a minimum term, probably at least one year.
Finding a lender
Lenders requirements vary widely, but start by asking each how long your home has to be removed from MLS before they’ll refinance. Some will write a refinance application immediately, while others won’t for at least a year.
Find out if the fact that you’ve listed your home will affect your refinance rate and terms. Learn what documents they require in this situation, because they might be different from usual. Be cooperative throughout the process so you can refinance as quickly and easily as possible.
Shop for the best deal
Don’t take the first deal you’re offered because you’re grateful that lender is willing to refinance you under your circumstances. If you truly intend to stay in your home, and everything else is right about your finances, you should be able to get refinanced.
Search for the lender who offers the best rates and terms on your new mortgage.Verify your new rate (Sep 22nd, 2020)