If you've put your house up for sale, you may want to refinance the property to reduce your monthly payments while you wait for a buyer. It's common to want to refinance a for-sale house during real estate downturns, when a house can sit on the market for a long time. While there are no legal rules or regulations against refinancing a property while it's for sale, lenders generally do not want to do so. Refinancing your house while it's on the market may not even be a good option for you as the owner.
Banks typically do not want to refinance houses while they are on the market because they anticipate that the house will sell in a short time and the loan will be paid off too soon. Lenders make money off the interest on a loan, so it is to their benefit to make that loan last a long time. If you refinance a house on the market to get a lower interest rate and then sell that house and pay back the loan right away, the bank will not make as much money on the transaction.
Lenders have their own internal policies for how and when they will refinance properties. Most lenders refuse to refinance a property if it has been on the market in the past three to six months. If you've put your house up for sale, then pulled it off the market and attempted to refinance, the bank assumes that you will once again put it up for sale after the refinancing deal. Finding a lender to refinance your house after you've recently attempted to sell it, even if it has been pulled off the market, may be difficult.
Consider whether refinancing is even a good option for you as the owner of a house for sale. Typical fees for refinancing range from 3 to 6 percent of outstanding principal. If you still owe $300,000 on your house, your fees for refinancing will be anywhere from $9,000 to $18,000. If you anticipate your house selling in a reasonable time, it probably is not in your interest to refinance due to the hefty fees.
If you want to refinance your house because it has been sitting on the market for a long time, consider canceling the listing. If you don't want to drop the price until the house sells, your best bet may be pulling it off the market and waiting several months until you find a lender willing to refinance the property. Once a refinancing deal goes through, you can put the house back up for sale.
Based in Chicago, Annie Wang has been writing since 2008. Her work has appeared in World Architecture News and other online publications. She holds Bachelor of Arts degrees in English and art history from the University of California, Davis.