Listing Your Home Can Screw Up Refi Chances

By Don Taylor of Bankrate.com

Lenders often frown upon first mortgages or refinancing loans for borrowers who have put their home on the market in the past six to 12 months. But options exist.

 

Q: A lender recently told me that it can’t do a refinancing on our townhouse, which we recently placed up for sale, worth $188,000. We wanted to get $55,000 cash out from the financing. We don’t have a mortgage.

The lender rejected the refinance, saying it doesn’t refinance properties listed for sale or listed in the past six months. Is this true of all mortgage-refi loans or just Freddie Mac and Fannie Mae? How about the Federal Housing Administration?
— Verna Vexation

 

A: Dear Verna,
If you don’t have a mortgage outstanding, you aren’t refinancing a mortgage. By your estimate, you certainly have the equity in the home to justify taking out a $55,000 first mortgage.

Limits placed on refinancing may not be germane to your situation. Lenders, however, still will be concerned with the borrower’s motivation in tapping home equity with a new first mortgage on a home recently listed for sale.

Lenders originating mortgage loans for Fannie or Freddie won’t approve a mortgage if a home is listed with a multiple listing service or has been listed in the past six to 12 months. The lenders struggle with why they should loan money to people who are or were actively considering selling their home.

In general, it takes several years for the homeowner to justify paying the closing costs associated with a refinancing — or, in your case, a financing. The lender has that break-even cost to consider, as well.