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.
Article continues below
Although I can’t find the specific language on the FHA website, several FHA lenders on the Web state that recently listing your home does not automatically disqualify you from financing with an FHA loan.
- On our blog, 'Listed': FHA raising costs, tightening rules
You may find it easier to borrow with a home-equity loan or a home-equity line of credit. These rates aren’t as attractive as a new first mortgage but may allow you to finesse the listing issue.
Alternatively, working with a mortgage broker to find a third-party lender could also allow you to address the listing issue. You may pay higher costs and a higher interest rate, though.
In the end, you want to balance the costs of financing against the interest rate and the amount of time you expect to be in the home.
