How to Buy a New Home Before Selling Your Old One: Leveraging a Mortgage Recast

Navigating the transition between selling your old house and buying a new one can feel like a high-wire act. Timing is everything, and for many, the ideal scenario involves seamlessly moving from the old home into the new one. But the financial logistics can be daunting. How do you manage to purchase your next home before you've sold your current one? One strategy that can facilitate this process is utilizing a mortgage recast. Let's dive into how this financial maneuver can be your bridge to a smooth transition.

Understanding Mortgage Recast

First, let's revisit what a mortgage recast entails. A mortgage recast is a feature that allows you to adjust your mortgage's amortization schedule, typically after making a substantial lump-sum payment towards the principal. This results in lower monthly payments for the remainder of the loan term without altering the interest rate or the loan's length. It's a cost-effective strategy for those who come into a significant amount of money and wish to reduce their monthly financial burden.

Step 1: Securing Your New Home with a Minimum Down Payment

The journey begins with ensuring you have the financial means to make an offer on a new home without selling your current one first. This is where using a minimum down payment of 3-5% down payment depending on what you qualify for. Not to worry if you don’t currently have the cash to make that down payment we have options to look at for you, so don’t let that be a deterrent to buying a new home.

Step 2: Buying Your New Home

With your financing in place, you can proceed to purchase your new home. This strategy alleviates the pressure of having to quickly sell your current home and potentially accepting a lower offer than you might otherwise. You have the luxury of moving into your new home and then focusing on selling your old one.

Step 3: Selling Your Old Home

Once you move into your new home, you can put your old house on the market. Without the urgency to sell quickly, you can wait for the right offer that matches your valuation. After the sale, you can use the proceeds to pay down the new mortgage on the new home.

Step 4: Utilizing a Mortgage Recast on Your New Home

Here's where the mortgage recast comes into the picture. After selling your old home, you can use the proceeds to make a large lump-sum payment on your new home's mortgage principal. Then, you can request a recast of your mortgage. This will lower your monthly payments, reflecting the reduced loan balance. The recast offers a twofold advantage: it makes the new home more affordable on a monthly basis and allows you to apply a significant portion of your old home's equity directly to your new mortgage, potentially saving you thousands in interest over the life of the loan.

Why Consider a Mortgage Recast in Your Transition?

A mortgage recast in this scenario is particularly appealing for several reasons:

**Lower Monthly Payments:** It reduces your monthly financial burden, allowing you more flexibility in your budget.

**Cost-Effective:** Recasting is always cheaper than refinancing. It usually has a fee of roughly $250 and doesn't require a new loan application or appraisal.

**No Change in Interest Rate:** Unlike refinancing, recasting doesn't affect your interest rate, which is especially beneficial if you've secured a favorable rate.

Conclusion

Buying a new home before selling your old one doesn't have to be a financial stretch. By strategically using a minimum down payment, followed by a mortgage recast, you can transition into your new home with ease and financial savvy.

This approach not only smoothens the move but also optimizes your financial health by leveraging the equity in your old home effectively. Remember, each financial situation is unique, so consult with a financial advisor or mortgage specialist (like me) to tailor this strategy to your circumstances.

Happy house hunting!