Buy Home Before Selling Home

Today, more and more Arizona homeowners are experiencing true equity in their homes.  No, I am not brave enough to use the word “normal” to describe our market however more folks are considering the purchase of a new home based on the fact that:

1. They can sell their home without short selling
2. They will actually make money when they sell (imagine that concept)

Real Estate agents and homeowners/home-buyers now must consider new elements and develop new strategies related to selling one home and buying another in Arizona.  Before the strategy often look like this: STEP 1:  short sell your house/STEP 2: and buy in x years (or some variation of that).  Now the challenge is factoring the current home being sold into the homeowner new Phoenix are purchase.  One way to factor this sale of a home in is with a contingent sale offer on a new home.   This option presents its own challenges though.  Will the buyer’s offer look less appealing because it is contingent?  What if the sale of their home falls through?   The solution in years past was what we called a bridge loan.  This helped buyers “bridge” the gap in a situation where a home must be sold in order to buy a new one however since bridge loans are at best a thing of the past let’s quickly move past his archaic idea.  Instead, the answer to the sell a home buy a home situation may be using a mortgage feature we call a “mortgage recast” (see below for more on this unique but effective solution).

The Challenge of  Simultaneously Selling & Buying

Other than the contingency related challenges outlined above, Arizona homeowners also encounter down payment related challenges when selling and buying.  Many buyers rely on the equity or profit from the sale of their home for a down payment on their new home.  However, if  a buyer is uncomfortable counting on the sale of the house taking place prior to the purchase of their new home they then need to find a way to buy a new house without as large of a down payment and without selling their existing home immediately.   When you put less down however, a few things tend to happen:

1. You borrow more than you may really want to
2. Your monthly mortgage payment is higher than what you really want
3. You may end up paying mortgage insurance

None of these symptoms of a low down payment are very exciting especially if a buyer really does have the money for a large down payment in the form of equity in their “to be sold” home but they just cannot tap into it yet.  Well if you are an “I like my cake and I like to eat it to” type person I have just the solution for you!

Home Loan Recast – Less Down Now & More Down Later

Now for the most exciting part of this article!  I am talking about a mortgage recast!   Okay, so as I typed that I realized how un-exciting that sounds.   Maybe cool sounding to other mortgage nerds like me but that’s about it.  What is exciting is what a mortgage recast can do for you.  In short, a mortgage recast can allow a borrower to put additional money down AFTER CLOSING and then have their mortgage payments re-calculated (the exciting mortgage nerd word for this is “re-amortized”) after doing so.

That means that a mortgage recast can allow a home buyer that cannot yet access the equity in their “to be sold house” to buy a home first with 5% down (for example).  Then, after they have closed on their new home/home loan and they have sold their existing home 3 months later (for example) they can lower the new mortgage balance AND monthly payment on the new loan.  At the point their previous home has sold, they can walk into their mortgage company hand them a check of  $100,000 (for example) from the profit the realized on the sale of their home and lower their mortgage balance AND monthly payment on the new home loan they just closed on.

Using the mortgage recast feature, a home buyer can have their monthly mortgage balance AND payment recalculated off of their now new $100,000 lower mortgage balance and end up at the mortgage balance AND monthly payment they originally wanted.

How to Recast Your Mortgage

Recasting after closing requires careful planning upfront.   Not every lender/investor allows recasting.  Also, some lenders/investors may allow recasting on certain types of loans and not on others (for ex: lender abc may allow recasting on Conventional yet not on VA/FHA.).   Lastly, every lender that I am aware of that allows recasting charges a one time fee at the time of recast.  Many charge $250 top $500.  In reality a nominal and somewhat insignificant fee if you look at the interest saved as a result of recasting.  Your Arizona Mortgage Lender needs to make sure you are locked and then sold to an investor  that allows recasting if recasting is part of your mortgage plan.   This is a GREAT way to ultimately get into the mortgage you desire without having to write a contingent offer (if you qualify for both homes) or biting your nails for 30 days straight hoping the sale of your house does not fall out of escrow.

Call us today if you would like to find out more about how a recast might fit into your mortgage plan.  Team

Phone:  602.435.2149   

By Jeremy House

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