In the last two years, many of my clients who were selling a house to buy a different home wanted to do the process in reverse order. There were several reasons. The most prevalent was that they were confident that they could sell their current home but, due to lack of inventory, less sure that they would be able to find a house that they loved to move into and/or be the successful offer chosen. In some cases, clients had either been in their home for many years and wanted to move out before they cleaned out, or they had children and dogs, so felt like it was impossible to get the house ready for sale with everyone still in it.

We have successfully helped clients buy before selling by using a mortgage recast. Mortgage recasting is a form of prepaying your mortgage. To recast your loan, you make a lump sum payment toward the principal balance. Then, the lender will re-amortize the loan with a smaller balance and new lower monthly payments. You retain the same interest rate and loan term.

So, how does a recast help someone buy before selling? Here is an example. Joe owns a house worth $500,000 with a $200,000 mortgage. He expects that once he sells the house, he will net $250,000, which he wants to put towards a new house. He would like to buy a house for $800,000 and end up with a mortgage of $550,000. But he wants to buy before he sells. So, he buys the house for $800,000 and puts down the minimum down payment of 5% ($40,000) which he has in his mutual fund. Then, once he sells his house, he recasts the mortgage on the new house by making a principal payment of $210,000 to get his mortgage balance down to $550,000. His mortgage is then re-amortized. Now, the payments reflect the $550,000 loan amount.

There is a catch. When Joe buys the new house, he must qualify to carry both his current and new mortgage payments. However, many times, clients do qualify because people rarely buy the most that they qualify for but instead what they feel they can afford. Each situation is a little different, so please contact me if this is something you want to consider.