It’s not an uncommon event for homeowners but when it happens at the wrong time it can really mess things up. Someone who decides to sell and after a month or two decides to take the property off the market and refinance the existing mortgage. After all, if the owner doesn’t get the price requested why not lower the monthly payment and wait until property values rise a bit more, say later on this year?
On paper it’s an excellent strategy. Say a couple owns a home and they want to sell it for $250,000. There’s a VA loan on the property and the balance is $225,000. Their real estate agent runs some numbers for them and said they’ll still new a few thousand but much of the proceeds will be used to pay for closing costs, including sales commissions. Yet because the VA home loan benefit can be used again, they can still buy another home after the sale.
The couple does indeed list the home for sale but they get no takers. Maybe a couple of “lookie-loos” but no one very serious about the deal. After three months, with no real offers, they seriously think about canceling the listing and refinance their VA loan which is a 15 year note at 4.50 percent. If they refinanced today, they could drop that rate all the way down to 2.75 percent and dramatically reduce their monthly payment. If prices go rise in a year or so, then they’ll put the home back on the market. So they apply for a refinance while there’s still a For Sale sign in the front yard.
However, the listing might cause some problems. VA streamline refinance loans don’t require an appraisal but there are ways for a lender to find out if the couple intended to sell. If a lender finds out either with a drive by appraisal or other means, the loan will stop dead in its tracks and likely turned down. Why? Because lenders aren’t all that excited about placing a loan on a home that will only last a few months. Such short term prospects cause lenders to lose money on the deal, not make money.
In this scenario, the couple will likely be asked to explain why the home is on the market and there’s probably no good explanation other than, “We want to sell.” If that’s the only answer, the loan may never make it out of the starting gate.