Are you thinking about refinancing before selling?

There are several reasons why you should refinanceyour house before selling it. Perhaps you wish to use your home equity to make repairs. Perhaps you've already relocated and are paying off two debts. Perhaps you just want a cheaper interest rate and monthly payment. Understand that most lenders will not allow you to refinance if the home is already on the market. However, if it is not listed, there is no regulation stating that you cannot sell your home after refinancing. However, you may encounter a few stumbling obstacles. Here's everything you need to know.

How soon after refinancing can you sell your home?

Many mortgageproviders do not limit the number of times you can refinance your loan. However, companies may place limits on how quickly you may sell following the refinancing.

Owner-occupancy clauses

You may have an owner-occupancy clause in your refinance agreement that prevents you from selling (or renting out the property) within the first 6-12 months of refinancing. By completing the refinancing papers, you agree to "occupy the house as your principal residence for a period of generally one year." If your agreement does not include this provision, you are free to sell at any time after refinancing. However, if your deal includes this condition, selling too quickly may result in legal complications with your lender.

The good news is that this is not an absolute rule. Some lenders will not enforce this stipulation if you have mitigating circumstances or a legitimate purpose for selling during this time period. If you want to sell after refinancing, search for owner-occupancy terms in the refi agreement and ask your lender what constitutes an acceptable cause to sell before the waiting time expires.

Prepayment penalties

Even if your refinancing agreement does not have an owner-occupancy condition, it may include a prepayment penalty. This is a cost charged by some lenders when a borrower pays off their mortgage loan early, generally within the first three years. Prepayment penalties are not common in new mortgage loans. However, before selling your house, make sure you verify your mortgage documents to ensure this. There are two sorts of prepayment penalties in circumstances where one does apply: harsh penalties and soft penalties.

Within the first three years, a harsh penalty prohibits both selling and refinancing, but a soft penalty prohibits only refinancing. If you have a hard penalty and sell inside the penalty term, you will be charged either a percentage of the remaining loan total or a certain number of months' interest. Prepayment penalties are significant, therefore this information is essential.