Yes, you can sell your house after refinancing, but if you do so before the refinance reaches breakeven or if you have to pay a prepayment penalty, you might lose money. You may have to wait if your mortgage contains an owner-occupancy requirement. However, in most cases, there is no bar to selling soon after a mortgage loan refinance.
Yes, you can sell your house after refinancing, but it’s not always the best financial decision. Here’s what you need to know before you make a move:
The Break-even Point:
When you refinance, you’ll incur closing costs. These costs can range from 2% to 6% of your loan amount. It takes time to recoup these costs through your lower mortgage payments. The break-even point is reached when you have saved enough cash to pay for the closing costs. You will lose money on the refinance if you sell your home before it reaches the break-even point.
Prepayment Penalties:
Some lenders charge a prepayment penalty if you pay off your mortgage early. This fine may be substantial, so you should consider it carefully before making your choice.
Owner-Occupancy Requirements:
Some government-backed loans, like FHA loans, have owner-occupancy requirements. This implies that before you can sell the house, you have to occupy it for a specific amount of time. If you violate the owner-occupancy requirement, you could face penalties.
Alternatives to Selling:
If you’re not sure whether to sell your house after refinancing, you have a few other options. You could:
- Request a loan modification: This would allow you to change the terms of your loan, such as the interest rate or the monthly payment.
- Take a no-closing-cost refinance: This would allow you to avoid paying closing costs upfront, but you would pay a higher interest rate.
- Hold off on refinancing: If you’re not sure how long you’ll be staying in your house, it might be best to wait to refinance.
The Bottom Line:
Selling your house after refinancing can be a complex decision. It’s important to weigh all of the factors involved before making a move. If you’re not sure what to do, it’s best to talk to a financial advisor.
How soon can I sell my house after refinancing?
Technically, you could sell your home right away after refinancing, but it’s not always a smart move. Here’s why:
Closing Costs:
When you refinance, you’ll have to pay closing costs. These costs can range from 2% to 6% of your loan amount. If you sell your house before you’ve recouped these costs, you’ll lose money on the refinance.
Break-even Point:
The break-even point is the point at which you’ve saved enough money through your lower mortgage payments to cover the closing costs. It can take several years to reach the break-even point, depending on the size of your loan and the interest rate you’re able to secure.
Prepayment Penalties:
Some lenders charge a prepayment penalty if you pay off your mortgage early. This penalty can be a significant amount of money, so it’s important to factor it into your decision.
Owner-Occupancy Requirements:
Some government-backed loans, like FHA loans, have owner-occupancy requirements. This means that you must live in the house for a certain period of time before you can sell it. If you violate the owner-occupancy requirement, you could face penalties.
The Bottom Line:
If you’re considering selling your house after refinancing, it’s important to talk to a financial advisor to make sure it’s the right decision for you. They can help you calculate the break-even point, factor in any prepayment penalties, and make sure you’re aware of any owner-occupancy requirements.
Should I Refinance Before Selling My Home?
Refinancing your house before selling it may or may not be a good idea, depending on your circumstances. But the right choice comes down to your goals and financial situation.
Before putting your house on the market, you might need to invest some money in it if it requires significant remodeling or pricey repairs. But you might not have the cash on hand to cover those costs. In that case, a cash-out refinance might be the solution. It provides you with access to the money you require to finish your renovations and sell your house for top dollar.
However, refinancing your home loan isnât free. In fact, it will likely cost thousands of dollars to finalize a refinance. Verify the refinance’s numbers to make sure it’s the best course of action for your financial circumstances.
As a general rule, some refinances are more expensive than others. For instance, the cost of refinancing through the Veterans Administration (VA) and Federal Housing Administration (FHA) streamline programs is typically low. Even if you intend to sell your house soon, you might be able to justify the costs if they are low enough.
Should You Sell Your House After Refinancing: Factors To Consider
In many cases, there is no legal impediment to selling your home after a refinance. But most homeowners choose to wait to sell their homes until after the breakeven point. The cost of the homeowner’s refinance exceeds the transaction savings if they sell before the breakeven point.
Prepayment penalties and owner-occupancy requirements may force you to postpone the sale of your house after it reaches the breakeven point. Before you place the for sale sign outside, take a closer look at each of the following factors.
The breakeven point is a major factor to consider when selling your home after a refinance. The breakeven point is essentially the point at which the savings from refinancing offset the cost of refinancing. It is advisable to hold off on selling until you reach the breakeven point in order to ensure that the costs of the refinance are recovered.
Hereâs how to calculate your own breakeven point.
Say, for example, that your initial 30-year loan had 2015 years remaining and a balance of $200,000 at 5% annual percentage rate. At this point, your monthly payment is ~$1,074, not including taxes or insurance.
You find a mortgage lender willing to offer you the same loan term with a 4% APR. After you refinance, your new monthly mortgage payment is $955per month. That means you are saving $119 per month. But you had to pay $8,000 in refinancing costs to finalize the loan.
You can now find the breakeven point by dividing the $8,000 refinancing costs by your monthly savings. In this case, it would take around 67 months, or just over 5. 5 years, to breakeven on the refinancing costs. After that point, your monthly savings are pure profit.
Generally, the costs of a refinance range from 2% â 6% of the loan balance. So if youâre refinancing $100,000, then you should expect to pay between $2,000 and $6,000 in closing costs.
A summary of these expenses will be given to you by your lender well in advance of the closing. With these numbers in hand, you can determine the breakeven point for your unique situation.
Before entering the market, you should think about the specifics of your loan product after the breakeven point. Specifically, youâll want to determine whether your mortgage has prepayment penalties attached.
Some lenders charge this fee if you pay off your mortgage early. Prepayment penalties often apply for the first two to three years of your loan term, though the specifics can vary. But many lenders, such as Rocket Mortgage®, donât charge any kind of prepayment penalty.
If you are a borrower, you should review your mortgage documents to see if there are any penalties associated with early repayment. If wading through the fine print doesnât help, give your mortgage lender a call. They should be able to tell you whether a prepayment penalty is required.
If thereâs a prepayment penalty attached to your mortgage, make sure to factor the cost into your plans. In some cases, the appreciation of your homeâs value will balance out the prepayment penalty. However, in other circumstances, selling before the prepayment penalty goes away could result in you having to pay thousands of dollars out of pocket.
When you refinance, some lenders attach an owner-occupancy clause to the loan. This specifically means that you must reside at the property for a predetermined amount of time as required by the lender.
The lender gets to decide if this clause is thrown into your refinance. But itâs common among FHA loan refinancing solutions. Should there be an owner-occupancy requirement, it is probable that you will be required to reside in the house for a minimum of one year prior to selling it.
Should this clause be present in your mortgage, you will need to postpone selling the house until you fulfill your end of the agreement.
You are subject to legal action from the lender if you choose to proceed with the sale anyhow. Avoid an owner-occupancy clause as much as possible because nobody wants to deal with the hassle of a lawsuit, and wait to sell until you are out from under this requirement.
Can You Sell Your House After Refinancing?
FAQ
What happens if you sell your house right after refinancing?
How long should you stay in your house after refinancing?
How soon after closing can you cash-out refinance?
Do you lose equity when you refinance?
Can I Sell my Home after refinancing?
You can, technically, sell your home immediately after refinancing, unless your new mortgage contract contains an owner-occupancy clause. This clause means you agree to live in your house as a primary residence for an established period of time. Some owner-occupancy stipulations require you to live in your home for several months or up to one year.
Should I refinance when my home is on the market?
If you plan to refinance when your home is on the market, ask your lender about prepayment penalties and when they expire. Rocket Mortgage® never charges prepayment penalties on any mortgages. So, you want to refinance, but you also know that you want to sell your home in the near future. What should you do?
Should I refinance If I plan to sell?
Today’s refinance rates are at historic lows. Many homeowners stand to save by refinancing — but if you plan to sell in the near future, a refi isn’t always the best move. If you’re on the fence, talk to a loan officer or mortgage broker who can help you explore your options.
What happens when you refinance a house?
The Answer May Surprise You. When you refinance, you take out a new loan to pay off your old one. This means that you now have a new mortgage. You are not allowed to sell your house until you have paid off the entire loan.