Can You Sell Your House After Refinancing?

You recently refinanced your home, but now your circumstances have changed, and you’re thinking about a move sooner than expected. Can you sell your house after refinancing?

In this guide, we’ll explore everything you need to know about selling a house after refinancing, including key questions to ask, the costs involved, and whether selling soon after refinancing makes financial sense.

Yes, you can sell your house after refinancing, but you’ll want to understand the costs and potential drawbacks. When you refinance, you take out a new loan, which usually involves significant closing costs. Selling the house shortly afterward might mean you’ll lose money if you haven’t stayed in the home long enough to offset those costs.

Here are some typical fees you’ll pay during the refinance process:

Application fee
Appraisal fee
Inspection fees
Title search and insurance fees
Possible attorney fees (required in some states)

On average, closing costs range from 3%–6% of your total loan amount. This means that if you refinance a $300,000 loan, you might spend $9,000–$18,000 in closing costs. If you sell soon after refinancing, you may not have enough time to recoup those expenses through savings on your mortgage.

How soon can you sell a house after refinancing?

Technically, you can sell your house at any time after refinancing, but timing can significantly impact your financial outcome. Some lenders include clauses in refinance agreements, like a prepayment penalty, that may add costs if you sell too soon.

Even if your refinance doesn’t have restrictions, selling early raises a related question: “How long does it take to break even on a refinance?” Breaking even refers to the point where your monthly savings offset the upfront costs of refinancing. (We’ll cover breakeven points more in a minute.)

Questions to consider before a refinance

Before refinancing, it’s wise to evaluate your plans and finances to avoid costly mistakes. Here are key questions to ask:

When do you plan to move?
If you’re planning to move in the next couple of years, refinancing might not be worth the cost. The upfront expenses can outweigh the savings unless you stay in the home long enough to break even.
What are your current mortgage rates and terms?
Compare your current loan terms with the new offer. A refinance only makes sense if it significantly lowers your interest rate or improves your financial situation.
How much will you pay in closing costs?
Closing costs on a refinance typically range from 3%–6% of the loan amount. Ask your lender about these fees and calculate how long it will take for monthly savings to offset them.
How much equity is in your home?
If you have limited equity in your home, refinancing might not provide favorable terms. Additionally, a cash-out refinance could reduce the equity further, which might impact your financial flexibility if you decide to sell.

Questions to consider after a refinance

If you’ve already refinanced and are considering selling your house, here are some key factors to evaluate:

Will you break even on the sale?
Calculate how much you’ve saved from refinancing compared to the upfront costs. Selling before reaching the break-even point can result in a financial loss. In the next section, we’ll provide a breakeven point example.
Will you face prepayment penalties?
Check your refinance terms for prepayment penalties, which some lenders charge if you sell or pay off the loan early. These fees can significantly impact your profit from the sale.
Does your loan have an owner-occupancy clause?
Some refinance agreements contain an owner-occupancy clause that requires you to live in the home for a set period after refinancing. Selling before this period could violate the terms of your loan and open you up to costly legal action from the lender.
Will you find yourself with negative equity in your home?
If your refinance increased your loan balance, you might owe more than the home’s market value. Negative equity could make selling challenging or unprofitable.

How does selling a house after a refinance work?

Selling your home after refinancing involves similar steps to a standard home sale, but there are added considerations due to the new loan. The most important factor is the breakeven point we discussed above. Let’s take a closer look at how selling a house after a refinance might work.

Example: Selling a house after refinancing

Let’s break down how to calculate your breakeven point after refinancing to see if selling your home makes financial sense. Here’s a step-by-step example presented as an easy-to-follow timeline.

Scenario:
You have a 15-year balance of $200,000 on your mortgage with a 5% APR. Your monthly payment is $1,074, excluding taxes and insurance. You refinance to a 4% APR and pay $8,000 in closing costs.

Step 1: Calculate your new monthly payment
With the new 4% APR, your monthly payment decreases to $955, saving you $119 per month.

Step 2: Determine the breakeven point
Divide the refinancing costs by the monthly savings:
$8,000 ÷ $119 = 67 months (about 5.5 years).

It will take 67 months to recoup the $8,000 spent on closing costs.

Step 3: Consider your timeline
If you sell before reaching the breakeven point (5.5 years in this case), you lose money on the refinance because you have not saved enough to offset the upfront costs.

If you sell after the breakeven point, the monthly savings contribute to your profit.

Key takeaway:
Before refinancing, use this approach to calculate your breakeven point. If you plan to sell your house within a few years, refinancing might not make financial sense. However, if you plan to stay in your home beyond the breakeven period, the savings could outweigh the costs, even if you sell later.

FAQs on selling a house after refinancing

Can I refinance if my house is on the market?
It’s challenging to refinance while your house is listed for sale. Lenders typically require you to take the home off the market before approving a refinance to ensure you plan to stay in the home.

What pitfalls should I avoid when refinancing?
Avoid refinancing if you plan to sell within a few years and won’t reach the breakeven point. Watch for prepayment penalties or high closing costs that could cut into your profits.

Is it bad to refinance a house multiple times?
Refinancing multiple times can increase your loan balance, reduce equity, and rack up fees. It’s generally not advisable unless there’s a clear financial benefit.

What refinancing alternatives are available if I plan to sell?
If refinancing doesn’t align with your selling timeline, consider these options:

Loan modification: Adjust the terms of your existing loan to improve affordability without taking out a new loan.
No-closing-cost refinance: Pay a slightly higher interest rate instead of upfront fees, which could make sense if you’re selling soon.
Hold off on the refinance: Evaluate whether waiting to sell before refinancing is more cost-effective.
Consider a home equity loan or HELOC: Access your home’s equity without refinancing your entire mortgage.
Convert your house into a rental property: If selling isn’t ideal, renting the home can generate income while covering mortgage payments.

Bottom line on selling your home after refinancing

Selling your house after refinancing is possible, but timing and costs are key factors to consider. Refinancing comes with upfront expenses that require time to recoup, and selling too soon may lead to financial losses.

Evaluate your breakeven point, lender terms, and overall financial goals before deciding. By carefully weighing your options and considering alternatives, you can make an informed choice that best suits your situation.

If you decide to sell, partner with a top-rated real estate agent who has a high sale-to-list ratio, an industry metric that compares a home’s final sale price to its original list price. HomeLight can connect you to performance-proven agents in your city. Our free Agent Match tool analyzes over 27 million transactions and thousands of reviews to determine which agent is best for you based on your needs.

If you’re trying to balance buying and selling at the same time, check out HomeLight’s Buy Before You Sell program. This innovative program provides a streamlined, simplified, and more certain process to make your best move. Watch the short video below to learn more.

Header Image Source: (iriana88w / Deposit Photos)

Tags: Real Estate News Beat

Can You Sell Your House After Refinancing?

Sell Faster and for More Money With a Top Agent