Q: My husband and I have had our house on the market since May with no offers. We want to know if we should refinance while we wait out this horrible buyers’ market.
We also want to know if getting a new mortgage through the refinance process will negatively affect our new mortgage rate when we buy. Our house is listed at $389,000 but is worth $450,000 and our current interest rate is 6 percent.
What should we do?
A: Unfortunately, since your home is listed for sale, you will probably be unable to refinance. Lenders don’t want to refinance a property that is listed for sale because they expect the property to be producing income for anywhere from 2 to 8 years, or longer. And, if it’s listed for sale, they believe it’s quite likely to be sold shortly thus the loan will be repaid much sooner than they would like.
The problem for you is that even if you pull your home off the market, you probably won’t be able to refinance it for six months. Lenders know that sellers will often try to refinance and will say that the home is no longer for sale, even as they are actively marketing it. I think you’ll have a tough time finding a lender through early next year.
I’m a bit concerned when you say that the property is “worth $450,000” but it’s listed at $389,000 and you haven’t had an offer. If the property was really worth $450,000 and you were offering it for $389,000, you’d have sold it almost immediately, with a line of buyers out the door.
The fact that you haven’t had any offers tells me that your property is worth substantially less than $389,000 in the current market, because if it the true market value was $370,000, for example, you’d have probably had at least one or two offers.
You should have a conversation with your agent about what other similar homes in the neighborhood have sold for and then you should go to see a few competing homes that are listed for sale so you can see what you’re up against, and at what price point. My best guess is that if you drop the price to a level somewhere close to the sales price of those comparable homes (the so-called “comps”), you’ll have a far better chance of selling your property.
If you decide you don’t want to sell at that price, then you should pull your home off the market, and wait a few months until you can successful refinance. Use the time to shop around for a quality lender who can help you at the right price. Since your mortgage amount is low, you should look at refinancing to a 15-year loan at 4 percent or even 3.5 percent. You should be able to keep your payments the same, while shaving years off of your mortgage.
Even if your credit union will refinance your mortgage, it should not affect the mortgage for a new house. You’re replacing one loan with another. It should be a neutral for your credit history.
A final thought: If you are intent on selling the home during the next several years, you should find a lender that will refinance you for the lowers fees possible. You may still consider the 15-year loan, but if you are there only a couple of years, you may consider the benefit of having the cash on hand for living expenses over whether you want to put more money into your mortgage payments – even if you are paying your loan down that much faster with a 15-year loan.
Good luck. Let me know what you decide to do.
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