How Soon Can I Sell My House After Refinancing?

It may seem like a good idea to refinance your mortgage to lower your interest rate and monthly payments. But what if you want to sell your home soon after refinancing? Is there a time limit or fees for selling too soon? Let’s find out.

Overview of Refinancing

First, a quick refresher on what refinancing means. Refinancing is the process of paying off your existing mortgage and replacing it with a new loan. The goal is usually to get a lower interest rate, change the loan term, or take cash out of your home equity.

There are closing costs of 2% to 5% of the loan amount that you have to pay when you refinance. These fees cover things like appraisals, title searches for the lender, and more. Refinancing doesn’t come for free, so you’ll need to make sure you get these costs back.

How Long Should You Wait Before Selling?

There is no definitive rule on how long you must wait to sell after refinancing. However, here are some factors to consider:

Reach the Breakeven Point

To recoup the refinancing costs, make sure to wait until you reach the “breakeven point” before selling. This is when the amount you’ve saved through lower payments equals the closing costs.

For example, if closing costs were $4,000 and you’re saving $200 per month, it would take 20 months to break even. Wait at least that long before selling to avoid losing money.

Check for Prepayment Penalties

Look over your loan papers to see if there is a penalty for paying off the loan early. If you pay off the loan early, usually in the first three years, you will have to pay this fee. It’s usually a certain amount of the loan balance or the interest paid over a number of months.

Obviously you’ll want to avoid this fee if possible. Make sure the prepayment period has passed before selling.

Review Owner Occupancy Requirements

FHA and some conventional loans require you to move in as your primary residence for a certain period, usually 1 year. This is to prevent borrowers from taking cash-out refinances on investment properties.

Selling before the occupancy period ends could trigger legal action. Check your loan documents and discuss with your lender before listing your home.

Compare to Closing Costs on New Loan

If you’re buying a new home, compare the costs of refinancing to the costs of closing on your new loan. If you’re going to move soon and have to pay closing costs all over again, it probably doesn’t make sense to refinance.

Consider Alternatives to Refinancing

You may want to avoid a refi altogether and save for closing costs on the new home instead. Or you could take out a home equity loan for renovations rather than doing a cash-out refinance.

Timing Considerations When Selling After Refinancing

While there are no absolute rules on timing, here are a few guidelines on waiting periods when selling a house after refinancing:

• 6 months – Many lenders require you to keep the home off the market for 6 months after refinancing if it was listed for sale beforehand. This reassures them you plan to occupy the home.

• 12 months – Typical owner occupancy period required by lenders. Provides evidence you moved in as your primary home.

• 1-3 years – Common prepayment penalty periods. Make sure this timeframe has passed before selling to avoid extra fees.

• 5-7 years – Minimum timeline experts recommend to make refinancing worthwhile, allowing you to recoup costs and maximize interest savings.

The longer you wait to sell after refinancing, the more benefit you’ll get from the lower rate and payments. But life circumstances might force you to sell earlier.

Selling an Investment Property After Refinancing

If you refinanced an investment property or second home, the guidelines are similar but more flexible.

There likely won’t be an owner occupancy requirement. Prepayment penalties and breakeven points still apply. But if you get a good rental return, you may refinance even if you sell sooner.

The timing decision depends on the financials of your situation. Do the math on costs versus savings to make the best call.

Alternatives to Selling After Refinancing

If you need to move soon after refinancing, you may want to consider these options rather than selling right away:

• Rent out the home instead to cover the mortgage payments
• See if you qualify to remove PMI or recast/modify the loan
• Ask the lender if they’ll waive the prepayment penalty due to special circumstances
• Take out a home equity loan for cash instead of refinancing

Key Takeaways

While you can technically sell your house at any time after refinancing, make sure you:

• Understand any prepayment penalties or occupancy requirements
• Calculate when you’ll break even on closing costs
• Compare costs to a purchase loan on a new home
• Consider rental income potential if keeping the home

Aim to wait at least 5-7 years after refinancing to maximize interest savings. But if you need to sell sooner, review the loan documents closely and crunch the numbers before listing. This ensures you make the best financial decision for your situation.