You listed your property for sale, but it is taking a long time to sell. In the meantime, you decide to refinance. Why not save some money while you wait for your house to sell? Or maybe you want to take cash out to fix the home up in the hopes that it will sell faster then. Either way, you may have your work cut out for you – most lenders don’t allow you to refinance when your property is listed for sale. They usually require you to take it off the market before making any changes to your loan.
YOU CAN’T BE ON THE MARKET
The first rule of thumb for many loan programs is your home cannot be listed on the market. This means more than just the MLS listing. You cannot have a sign in your front yard or have your home listed for sale somewhere on the internet. If you tried to sell your home by owner, you still have to abide by these rules. Of course, finding your home on the MLS is much easier for a lender than if you sold by owner, but they will still find out. Any lender willing to refinance while your home is on the market is very few and far between.
HAVE A REASON
You have to have a reason for suddenly wanting to refinance your home after it was listed for sale. It is not enough to say your home didn’t sell. The lender wants to know specifics, such as why were you selling in the first place? What are your future plans? Make sure you are honest about your situation so the lender cannot accuse you of mortgage fraud down the road. What they want to know is how long you intend to stay in the property. Are you trying to come up with a temporary fix until your house sells? Maybe you had a hard time keeping up with the payments before and that is why you decided to put it on the market. This is different from someone who put their home on the market because their job relocated them. This person needs to move and will likely do so in the near future. Someone trying to lower his or her payment may stay if the payment becomes more affordable.
The bank cares so much about your future plans because it affects their profits. Let’s say the bank grants you a refinance. They go through the costly process of funding a new loan for you only to have you sell the home six months later. This only gave the bank six months to earn interest on your loan. That is not enough for them to make a profit. Since you had the intention to sell the home initially, the bank wants to know what you plan to do so they can make their decision accordingly
YOU CAN’T TAKE CASH OUT OF A HOME LISTED FOR SALE
In many cases, you will not be able to take cash out of the equity of your home if you had it listed for sale recently. The lender has to protect themselves. If you were unlucky in trying to sell your home, why would the lender want to give you cash out of the investment that you may have trouble keeping? This decision may vary by lender and area, though. If the lender knows the area your home is in has had a tough time lately, they may not want to invest any more money into your home.
What if the inability to sell your home is a sign of a struggling economy in your area? Does the bank want to have further interest in your home? They are stuck with what they already loaned you, but will protect themselves in the future. Plus, if you decide to sell soon after taking out the loan, will you be able to get a high enough value to pay off the higher loan? Many loan programs just avoid this situation altogether. Some offer a program, though, such as Freddie Mac. They enable you to take cash out of your equityafter the home is off the market for 6 months and 1 day. Freddie Mac does limit the LTV to 70% for these transactions, though.
PROVE YOU DON’T HAVE ANOTHER HOME
Another risk lenders consider when refinancing a home recently listed for sale is the risk of you owning another home. They want to know beyond a reasonable doubt that you don’t own another home. This could be a realistic if you tried to sell the home but failed, yet you still have little furniture in the home or have boxes packed away. There are different benefits for borrowers securing financing on their primary residence than there are for those who secure financing for an investment. This is because the risk to the lender is much greater when you need financing on a home you will not live in – you are more likely to pay the mortgage where you live over any other loan.
If your home was listed for sale recently, you are not out of luck if you want to refinance. You may have to shop around with different lenders and be open to different loan programs, though. In order to make the process go smoothly, make sure your home is off the market completely before you apply for a loan. Also, make sure you are honest with your lender right away – don’t try to hide the fact that you had your home on the market. This way they can help you through the process and ensure that it goes off without a hitch. If you try to hide it, the appraiser will find out one way or another, especially if you used a realtor and the home was listed on the MLS. The worst-case scenario could mean waiting 6 months before you refinance, but this gives you a chance to make sure you really want to keep the home and refinance into another loan.