Refinancing Your House if it Was Recently Listed is Not As Easy As You Think

I just got off the phone with a very good real estate agent client of mine.  He is refinancing one of his investment properties. 

I told him the appraisal came back higher than he expected, which is great news, but also it shows that the home was just taken off the market two weeks ago after not selling for six months.

"So, is that a problem?" he asked me.

Well, yes it can be.  Let me explain.

Banks all have different guidelines, as we all know.  Although a few may allow you to refinance after the home has been off the market one day, most will not give you a loan unless its been off the market at least six months.

In today's market of credit tightening, its much harder to find banks that allow "one day off market."  Most lenders want three to six months off the market. 

And when you limit the possibilities of lenders you can go to, you limit products, and you limit the amount of competitive rate quotes.

Sure, it can be done but it may be more expensive than it would have been had the home not been listed. 

The very best to thing to do if you are considering a refinance is to immediately let your lender know if the house has been the market recently so he can plan accordingly.

If you are granted an exception and get a loan there are some things the bank may require. 

For one, they likely won't let you refinance the home using a value any higher than you listed it for.  For example, even if your home will appraise at $320,000, if you listed it at $300,000, they are likely to base your loan at $300,000.

Many lenders are now requiring that if you refinance, and you were recently on the market, that you agree to a one year hard prepayment penalty.  This means if you sell or refinance in the first 12 months of the new loan, you have to pay them a penalty.  Usually six months interest payments.

Why is this?  One of the main reasons is the goal of the bank is profit.  The more interest payments you make to them the more profitable your loan is. 

If you are determined to sell your home, you failed up until now, and you want to pull cash out from them and then sell it, the loan takes on a whole new level of risk and not as much reward.

And in today's lending climate, as you can imagine, the last thing they want is more risky loans.

Thinking of refinancing?   Call your lender first and make sure you tell him the recent listing history of the property. 

If you are wondering whether you should refinance or list your property, refinance first, then list it.