Of course you can sell your house after a cash-out refinance. Although, it can be beneficial to plan out accordingly. It can be very tempting to sell your home after a cash-out refinance. With the money taken from the home equity, you can perform repairs or even upgrade your home and increase its market value. But, it’s not always a good idea to sell your home after a cash-out refinance. Also, there are several obstacles you may face in the process.
1. Through Owner-occupancy Clauses
If you accept the owner-occupancy clause in your cash-out refinance agreement, you may not be able to sell the home within the first six to twelve months. Selling your home yet you agreed to this owner-occupancy clause can trigger legal problems with the lender. If selling your home is the end goal, look for a lender that doesn’t enforce this clause in its terms. Suppose you find yourself in such a scenario, with a valid reason, the lender can overlook this clause.
2. Through Prepayment Penalties
Certain lenders have a prepayment penalty where borrowers are charged for paying off the loan early. This, in most cases, is within the first three years. Prepayment penalties aren’t very popular these days, but you need to confirm before selling your home after a cash-out refi.
A cash-out refinance can be a great idea if you want to renovate your home before selling it. The money borrowed from the equity can be used for repairs and renovations to boost your home’s value. Also, a cash-out refinance can help you find a better interest rate on monthly mortgages. As a result, homeowners can save more money while preparing to sell.
As great as a cash-out refi is, certain drawbacks dawn in when you sell your home. First, you need to know that taking a cash-out refi doesn’t make financial sense if you are going to sell your home immediately. There are closing fees associated with a cash-out refi. They include application, appraisal, inspection and insurance costs. These accumulate to around 2% to 5% of the loan balance.
Example
Assuming that you paid $4,000 in closing costs and the new mortgage has decreased your monthly payments by $200. You will need to stay in that home for twenty months to reach a break-even point.
Also, these closing costs can take a chunk out of your savings and make it harder to come up with a down payment for your new home. The best decision will be not to refinance if you plan to move homes.
If you think that a no-closing cost cash-out refinance is better, please note that these fees will be added to your new mortgage, and you will eventually have to pay for them at a higher rate.