How to Buy a New Home Before Selling Your Current One: The Power of Mortgage Recasting

Great news—you’ve found your dream home! The excitement of securing a new place is overwhelming, but now you’re faced with a tricky dilemma: you want to use the equity from your current home to make a substantial down payment on your new property. But what if you don’t want to sell your home first and risk losing the house of your dreams to another buyer? Or perhaps, you’re concerned that the timing won’t align perfectly, and you might not find a new home before having to close on your current one.

Fortunately, there’s a solution that could make this situation a whole lot easier: mortgage recasting. Read on to find out why this option might be just the tool you need to navigate the real estate market with more flexibility. Let’s dive into how mortgage recasting works, its potential benefits, and some important considerations before moving forward.

What Is Mortgage Recasting?

At its core, mortgage recasting allows qualified buyers to purchase a new home before selling their current one. This is especially beneficial if you’re relying on the equity from your existing property to secure a more affordable mortgage payment on your new home.

Mortgage recasting is often confused with refinancing, but the two are quite different. With mortgage recasting, the homeowner is not required to sell their current home before buying a new one. Instead, you close on your new home and then, once your old home is sold, apply the equity from that sale to recast your mortgage, thus reducing the principal amount of your loan.

Here’s the breakdown of how it works:

1. Close on your new home: You purchase your new property and secure a loan as usual.
2. Sell your current home: Once your current home sells, you take the net proceeds and apply them as a lump sum toward your mortgage balance.
3. Recast your mortgage: With the new lump sum, your lender will recalculate your loan balance, which in turn lowers your monthly mortgage payment. Importantly, this process doesn’t change your interest rate or the terms of the loan. It’s simply a way to reduce the principal balance, which leads to smaller payments over the life of the loan.

Example of How Mortgage Recasting Works

Let’s look at a real-life example to help clarify how mortgage recasting can benefit you financially:

New Home Purchase:

• Purchase price: $300,000
• Loan amount after down payment and financed PMI buyout: $291,000
• Interest rate: 4.75% on a 30-year fixed mortgage
• Monthly payment: $1,517.99

Fast forward a few months—after selling your previous home, you net $100,000 from the sale.

Now, you can apply that $100,000 as a lump sum payment to reduce your principal balance.

Mortgage Recast:

• New loan amount after recast: $191,000
• New monthly payment: $996.35

As you can see, after recasting your mortgage, your loan balance is significantly reduced, and your monthly payment drops by over $500. This is a substantial savings, and it could provide some financial breathing room, allowing you to enjoy your new home without the heavy burden of a high monthly mortgage.

Advantages of Mortgage Recasting

Mortgage recasting can be an attractive option for several reasons:

1. Lower Monthly Payments: One of the most obvious benefits is the reduction in your monthly mortgage payment. By paying down your principal balance, you can significantly lower your payments without needing to refinance or change your loan’s interest rate.
2. Flexible Timing: Recasting allows you to purchase a new home before selling your old one, which can give you more time to find the right buyer for your current property. You won’t have to worry about rushing the sale or potentially losing the opportunity to buy your dream home.
3. No Need for a Full Refinance: Unlike refinancing, which often requires paying closing costs and changing your loan terms, recasting only requires a lump-sum payment toward the principal. This process is less expensive and more straightforward than refinancing.
4. No Change in Loan Terms: Your interest rate and loan duration remain the same after the recast. The primary change is a reduced loan balance, which helps lower your monthly payment, making your mortgage more manageable.

Cautions to Consider

While mortgage recasting offers many benefits, there are a few important cautions to keep in mind:

1. Not All Lenders Offer Recasting: Mortgage recasting is not available with every lender. It’s important to ask your lender directly if they offer this option and what their specific requirements are.
2. Recasting Fees: While mortgage recasting is typically cheaper than refinancing, there are fees involved, generally ranging from a few hundred dollars to more, depending on the lender. It’s important to budget for these costs.
3. Loan Eligibility: Not all loans are eligible for recasting. For instance, FHA and VA loans typically cannot be recast. Conventional loans and certain other types of mortgages are more likely to qualify. Be sure to check with your lender to confirm whether your loan qualifies for recasting.
4. Financial Strain of Carrying Two Mortgages: Until your current home sells, you’ll be responsible for paying two mortgages—one for your new home and one for your old home. Make sure you can comfortably manage both payments and any additional carrying costs (e.g., maintenance, utilities) before committing to this option. If you’re unsure, it may be a good idea to consult with a financial advisor to ensure you can handle the financial load.
5. Impact of Market Conditions: Depending on market conditions, it may take longer than expected to sell your current home. If you’re not able to sell quickly, the dual mortgage burden may become a strain. Be prepared for this possibility and consider factors like how long it may take to sell your home in the current market.

Is Mortgage Recasting Right for You?

Mortgage recasting can be a powerful tool if you’re looking to buy a new home before selling your current one. It allows you to reduce your mortgage balance and monthly payments after selling your old home, without the hassle or cost of refinancing. However, it’s not a one-size-fits-all solution, and it may not be available with all loans or lenders.

Before making a decision, it’s important to:

• Confirm that recasting is available with your lender.
• Understand the fees and conditions associated with the process.
• Evaluate whether you can financially manage two mortgages while waiting for your home to sell.

If you’re unsure about whether mortgage recasting is the right option for you, it’s always a good idea to speak with a knowledgeable mortgage advisor. Our team can connect you with local experts who can help guide you through the process and explore your options.

Our team is happy to put you in touch with some fantastic local lenders to discuss this option.

Need more information or want to discuss this in greater detail? Reach out to us today. We’re here to help!