How Long Should You Stay in Your House After Refinancing?
Penalty For Selling a Home After Refinancing
How Soon After Refinancing Can I Buy Another Home?
Should I Refinance My Home If I Plan To Sell In 5 Years?
Selling After Refinancing Bottom Line
It depends on what it says in your new mortgage contract. When you refinance an existing loan, sometimes the agreement will have an owner-occupancy clause, which means you must use the home as your primary residence for a set period after refinancing. If there is an owner-occupancy clause, you may have to stay in the home for an additional 6 to 12 months after refinancing.
There may also be a prepayment penalty, which is a fee for paying off the mortgage early. So read the contract or speak with your lender to determine the exact requirements. If there is no owner-occupancy clause or prepayment penalty in the contract, you can sell at any point.
Penalties for selling your home after refinancing can vary depending on the lender and the infraction. Violating the owner-occupancy clause is technically considered mortgage fraud and can result in your lender revoking your mortgage or requesting full payment on the loan.
However, the penalty is typically only used if a homeowner knowingly violates the clause by using the home as an investment property instead of a primary residence to get a better interest rate. But to be safe, you should call your lender to find out if you'd be violating the owner-occupancy clause by selling right after you refinance so you don't get in any trouble.
If there are prepayment penalties, you'll have to pay a fee to sell your home and repay the mortgage early. The fee is usually somewhere around 2% of the outstanding loan balance. Plus, you'll have to consider all the closing costs related to refinancing, which may make you think twice about selling right away.
You typically won't be eligible for a new mortgage for at least six months after you refinance or 12 months after purchasing a new home unless you sell your current residence. So, say you were doing a cash-out refinance to buy a new property, you will have to wait at least six months before you'll be approved for another loan.
Plus, refinancing may impact your credit score, possibly affecting your ability to get a new loan. It will add a hard inquiry to your credit report, which can cause you to lose a few points. So, you may have to wait a while for your score to bounce back if you need to meet a specific minimum requirement.
You shouldn't refinance your home if you plan on selling soon, as it can take up to 5 years to cover the refinance costs. On average, a refinance will cost you $5,000, and you'll only save $100-200 per month by refinancing.
If you have a very high-interest rate or loan balance, you will start seeing the benefits of refinancing faster, but if your balance is under $200,000, it will take years for the refinance to pay for itself.
You can typically sell your home after refinancing without much trouble, but it won't always make financial sense to refinance if you plan on selling in the near future.
Before going forward and refinancing, it's best to think about your plans. For example, if you know you will sell the home within a few years, it likely won't be worth it to refinance.