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Can I Refinance My Mortgage If My House Is On the Market?

By Gina Pogol
Mortgage Credit Problems Columnist


Ned Asks: Dear Gina, I had some credit problems a few years ago but have since then gotten my credit score up to about 660. I want to refinance from my bad credit mortgage and hopefully into an FHA home loan. My house has been listed for sale for about six months but nothing is selling here. My real estate agent said that having it for sale could keep me from getting approved for a refinance. Is this true?

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Gina Says:

Dear Ned,

Normally, I tell people to refinance out of a bad credit mortgage before putting property on the market. I also recommend that they refinance with a no- or low-cost loan. There's no point in paying extra to buy the lowest mortgage interest rate if you don't plan to keep the loan too long.

Refinancing? Take Your "For Sale" Sign Down

If your home is already for sale, for sure you can't market the property while trying to refinance your mortgage. If it has been listed in your area Multiple Listing Service (MLS) you won't be able to conceal the fact that the house has been on the market. The appraiser will note it on his or her report and you probably won't be allowed to refinance right away. If you have only an informal agreement with an agent (called a "pocket listing") you can just suspend it until you complete your refinance. But be intelligent and ditch the "For Sale" signs. Appraisers, underwriters, and loan officers have been known to notice and have killed refinances.

Times Are Changing

Lenders today do understand that this is an unusual environment and that people have had to alter their home ownership goals. So, if you can document the reason you listed your home for sale (wanted to get a smaller home), why you no longer wish to sell it (can't get enough to repay your mortgage), and prove that you have canceled the listing agreement--you can probably find a lender to refinance you eventually. FannieMae allows this if your loan-to-value is 70% or lower, in any case. Otherwise, you might have to de-list your property (keep it off the market) for at least three months before your refinance can go through. Another option is to accept a loan with a prepayment penalty.

Your Refinance: FHA to the Rescue!

You may be able to save big by refinancing your mortgage to an FHA home loan. Listing your property for sale used to make it automatically ineligible for a refinance. Not any more. Contact several lenders and find out what their policies are. Then take care of the required paperwork and make your best deal.

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