Refinancing a home you want to sell Ask Dr. Don by Don Taylor, Ph.D., CFA, CFP • Bankrate.com

Dear Dr. Don,
I recently wanted to do a cash-out refinancing on my home. Because I had it up for sale up until about a month ago, I was told I had to wait six months to refinance with cash out. Is this an industry standard? I was totally approved for the refinancing until that question came up.
Thanks,
-- Tom Turnover

Dear Tom,
Mortgage loans face certain underwriting standards that make the loans marketable to mortgage investors. In general, mortgage investors are looking to lend money long term and don't like to lend money to refinance a mortgage only to have that mortgage paid off in a few months when the property is sold.

There can be some variation in underwriting standards across lenders, and not all lenders will require that your home be off the market for six months before they will refinance your mortgage. E-Loan, for example, has this to say on the topic:

E-Loan's policy

If your home has recently been for sale it must be off the market for 90 days before E-LOAN can provide you with a home equity loan on that property.

The following is an excerpt from the mortgage origination guidelines of a nonprime lender:

Underwriting properties listed for sale

Refinancing properties heretofore listed for sale may be considered on a case-by-case basis providing the following: • The listing is withdrawn and a cancellation notice placed in the file. • Prepayment charge may not be bought out and cannot be waived. • The maximum LTV on properties listed within the preceding six (6) months is 80 percent of the listing price or appraised value, whichever is less.

So, it can be done. You might just have to work on it a bit. Should it be done is another matter. If your intent is to sell the property, then paying the closing costs on a cash-out refinancing doesn't make much sense. It's just too expensive a way to tap your home's equity. 

A home equity line or loan could be a better short-term solution, but there are underwriting standards to consider there as well. There may also be a prepayment penalty if you close out the home equity financing within the first few years of the loan.

If you're still convinced you need a cash-out refi on your recently unlisted property, you should consider working with a mortgage broker. Look for an "Upfront Mortgage Broker," as described by Jack Guttentag in a feature, "Want your mortgage wholesale? Try an upfront broker," he wrote for Bankrate.

To ask a question of Dr. Don, go to the "Ask the Experts" page and select one of these topics: "financing a home," "saving & investing" or "money."