Q: My husband and I have had our house on the market for approximately five months of this year. We decided to take it off the market because my husband’s job wasn’t secure and he was uncomfortable selling until we knew more about his work situation and any layoffs that might be occurring.
We decided to refinance our loan. But our loan officer tells us that no one will touch us for at least 6 months because our house was up for sale.
Can you please explain this to us, because we think it’s ridiculous. I just need to understand what the lender’s point of view is. And have the rules always been like this? This is my third home and I’ve never heard of this.
A: You’re being given accurate advice. Mortgage lenders expect loans to last for a certain period of time – that’s how they make their profit. In putting your home on the market, you’re signaling that you really want to sell – not stay. If you pull the home off the market, a lender assumes you really want to sell until the property has been off the market for 6 months. Since you listed the home for sale, that listing now creates a refinance problem for your lender.
Why 6 months? I can’t really answer that. But it is the accepted period of time for lenders to understand that you truly intend to stay in your home. Some lenders may require a lesser time but many today will require a six month period of time before they will refinance the home.
The investors who buy loans on the secondary market expect them to be good (meaning in force) for a certain period of time. They understand that some people sell homes suddenly or refinance for various reasons. But the loans they buy aren’t immediately profitable for them. They have to be held for a period of time. That’s why lenders want to be sure you’ll be in your home for a period of years.
I’m sure someone did a study somewhere that said if you list your home for sale, and pull it off the market, you’re mostly likely to relist within 6 months. That’s probably where the 6 month seasoning period comes from.
With all the mortgage fraud the last several years, many lenders and loan investors have also become more cautious about lending to borrowers. In some cases, borrowers are purchasing new homes without having sold their old homes. Once they close on their new home, they then default on their old home’s mortgage leaving the lender to foreclose.
Because of the many types of mortgage fraud and other real estate market conditions, lenders have determined that they are best served making sure the homeowner hasn’t tried to sell a home in the last several months before the attempted refinance to limit their potential problems.
My best advice on refinancing is to either wait it out or find another mortgage lender that uses a shorter period of time in evaluating your loan refinance application.
The good news is that I think mortgage interest rates are going to stay about where they are or perhaps float down a bit. So even if you wait a few months to refinance, you’ll still benefit from the lowest interest rates in 40-odd years.