Refinancing is an important tool for homeowners, allowing borrowers to move from an impractical, expensive, or high-interest loan into a mortgage that fits their specific needs.
Generally, refinancing is for borrowers who will stay in the home, or at least own the property, for years, even decades, into the future. But in some rare cases, people actively selling their home want to refinance.
As we’ll show, it may not right for everyone, but on some occasions refinancing a property listed for sale is the best choice. If it is right for your situation, we’ll guide you on how to make it happen.
Refinancing a Property Listed for Sale
Is it Possible?
By now, you probably realize that, yes, it is possible to refinance your property even if it is listed for sale. After all, we wouldn’t be writing this article if it weren’t. (Or, at least, the article would be a lot shorter!)
The simply answer is “yes, you can refinance a for-sale property.” But you’ll likely have to complete two important steps:
- Take your home off the market. To refinance, you’ll almost certainly need to stop the selling process.
- Depending on the loan and the lender, the home may have to stay off the market for an extended period.
Why Refinance a Home that is Listed For Sale?
As we alluded to, it can be a difficult, time consuming process to refinance a home that is already listed for sale. But there are a few reasons why homeowners may want to do so. If you have moved out of the property, but still carry two mortgages (one for the old house and one for the new), it may be worth the effort to refinance. Also, if the home has been on the market far longer than you expected, it could be useful to refinance.
If your for-sale property currently has a short-term mortgage, such as a 15-year loan, you could likely save on your monthly budget by refinancing to a 30-year. This could be extremely beneficial if carrying two mortgages has become a financial burden. Refinancing won’t reduce the total amount you owe, but it could reduce the amount you have to pay every month.
The basic principles of when to refinance also apply. Refinancing is often useful for homes that have a high interest rate, but you need to be certain that the financial benefits will outweigh the costs.
The Challenges of Refinancing a Property Listed For Sale
Refinancing a mortgage on a house that has been listed for sale is challenging, but it can be done. To understand the process, it helps to imagine how a lender would usually approach this issue, and why they tend to be cautious when borrowers want to refinance after placing the home for sale.
Basically, selling a home immediately after it has been refinanced means the lender will not realize the profit they usually get from a loan. Lenders make money off of interest, so if the chance to generate interest on the loan is cut off, the lender has virtually no chance to make a profit from their time and energy.
Also, if the lender sells the loan to investors, but you sell the house and pay off the loan almost immediately, the lender may be forced by the investor to buy the loan back. In this case, the lender could actually lose money if he or she actually incurs upfront costs of originating the loan but earns little or nothing on interest. This means that the lender doesn’t just stand to make zero profits, they could actually lose money on the deal.
There are also concerns that you could default on the loan. In general, people who have listed the house for an extended period, or have moved into a new home with a lower mortgage, are more likely, statistically speaking, to default. Lenders are aware of this fact and do their best to reduce this risk.
How to Refinance a Property Listed for Sale
If you follow these basic steps, you will increase the chances of your refinancing application being approved…
- Talk with a Lender First: You should avoid making any assumptions on the specific requirements until you meet with an experienced lender. Talk with a lender or agent, either in person or over the phone, to fully understand their requirements for refinancing the property. Lenders have different requirements, and some may insist you keep the home off the market for as long as a year after refinancing. Be sure that you understand these requirements before proceeding.
- Cancel the Listing: If your home is listed and you’re ready to refinance, the first step is usually to formally cancel the listing. Get the cancel agreement in writing, and write a letter to your real estate agent that indicates your desire to take the home off the market. Make sure they understand, without a doubt, that for now you do not wish to openly market your home as a for-sale property.
- Communicate Your Intentions with a Lender: The next step is to draft a formal letter that will be sent to your lending agent. The letter should state your intentions and make it clear that you will no longer be listing the property and wish to refinance your mortgage loan.
You may have noticed something. In the steps we outlined above, you are not actually refinancing a property listed for sale; you are taking it off the listing sites, refinancing, and at some point in the future placing it back on the market. So, one could argue, this is not literally refinancing a home listed for sale. But the overall result is the same…you just have to take a different path to get there.
Refinancing Costs Must Be Carefully Measured
Refinancing costs money. Yes, you can save by having a lower down payment, but these savings need to be measured against the costs of creating a new loan. Generally, refinancing is best for people who will hold the new mortgage for an extended period, so if you are selling, refinancing could cost more than it saves. But you’ll never truly know unless you speak with a qualified lending agent.
Learn More about Refinancing a Property Listed for Sale
If you think refinancing a property listed for sale may be a wise move for you, talk with the experts at San Diego Purchase Loans. We’ll take an honest look at your current situation and help you decide whether refinancing is appropriate.
You’ll get honest, reliable advice from experts who understand the mortgage industry, so contact us today!