Home buying in Denver can be particularly challenging for all kinds of reasons. Let’s say you currently have a home but are looking to upgrade or downsize. So, you find the perfect house, but you want the equity from your current home to put a large down payment on the new place. Or you’re worried about not finding a new home before closing on your current home. Regardless, selling and buying at the same time is very challenging, but you may not have to.

One option that might allow you to purchase a new home before selling your current home is mortgage recasting (also called loan recasting).

A mortgage recast is when a homeowner is authorized for a loan without the contingency of having to sell their current home. The homeowner can close on their future home and, once their current home is sold, recast the loan using the equity earned from the sale.

Here’s how it works:
The way recasting works is a large lump payment is paid toward the principal of the loan (usually at least $5,000 to $10,000). Next, the lender calculates a new principal and interest payment based on the lower principal balance, thus lowering the monthly note. Interest rate and loan terms are unchanged.

For example:
New home purchase: $300,000
Loan amount: $291,000 (after down payment and financed PMI buyout)
Interest rate: 4.75%, 30-year fixed
Monthly payment: $1,517.99

Fast forward a few months to the sale of the original property:
Net proceeds: $100,000
Mortgage recast requested applying the $100,000 to the loan
New loan amount: $191,000
New monthly payment: $996.35 (over $500 less)

Not all lenders allow recasting, and there are fees involved to do so, but they are typically only a few hundred dollars. Additionally, not all loans qualify for recasting. If you think a recast mortgage could be the solution to help get you in a new home this spring, contact Metrowest – we’d love to discuss your options!