Thanks for explaining the terminology in a very detailed but simple way to understand as the reader
Charles, recasting a mortgage sounds like a good way to help home owners who can afford and qualify to take advantage of it.
Have never heard of a mortgage recast. Still contingent on the buyers credit I believe so they have to have the ability to carry both loans. Probably a good risk.
This may just be the solution for several of my clients whose loan refi's got delayed due to the interest rate hike. A lot of them were willing to pay to have lower payments, but not the thousands that were being required to refinance at a lower rate. Going to put some more time into researching this. Thanks for the heads up. Goes to prove we always have something to learn from one another!
Hey, GREAT info. That may help a few potential Buyers that I have to go ahead and "Buy now, Pay later"....so to speak.
Charles,
GREAT post. as others have said...
A potentially great idea for the right (= qualified) Borrower(s), that gives them both flexibility after the Closing-- they don't have to use all of their proceeds to recast-- and makes them a less contingency-laded (= more attractive) Buyer.
Sure, it will cost them to recast, but it will probably be worth it if it helps them secure their "dream" home.
I have never heard of this, but it sounds like a great tool. Thanks for the post.
Never heard of a recast loan but thanks for introducing us to it and in such an easy to understand way for the average laymen.
That's a great solution for some buyers, yet most buyers wouldn't qualify for both loans, wouldn't they and isn't that the reason why most buyers must wait until their home sells first before buying another?
OK, sounds good but what lender will do this? Sounds like something they re-initiated from the 'old days' & are using again.
My question is similar to Lyn's question -- how many lenders will do this? I'd hate to encourage a client that they could recast the loan in this manner if it's not called out in the purchase loan documents. Rules seem to change too often....
Thank you for your comments and I’m sorry for not getting back sooner.
Bill Reddington, you are correct. Not only do they have qualify for both mortgage payments (and other credit liabilities) but they have to have adequate reserves for the transaction after their down payment as outlined here: http://iloanhomemortgage.com/uncategorized/converting-a-primary-residence-into-a-second-home-or-investment-property/.
Paul Collier – Smart thinking man. I did that on two of mine too.
Bob Miller – A bridge loan is a temporary credit instrument whereas setting up a recast uses the permanent loan to achieve the “swing” if you will. I prefer bridge loans but they are scarce. They are scarce for two reasons. Firstly, they are not particularly profitable to a bank. Any loan that doesn’t exist for long, doesn’t give the bank a chance to earn interest and upfront fees are hard to charge in a profitable way. Secondly, these were usually done as a junior lien secured by real property and most banks either won’t do those anymore, won’t do them past 90% of the value of the collateral or won’t do them if the intent of the borrower is to sell the home in the near future.
Kimo Jarrett – Correct. Most buyers don’t qualify to do this due to the requirements outlined above to Bill Reddington’s comment. When appropriate and possible however, it can be the difference between you landing a client vs. someone else landing them (and usually, it’s a nice pair of transactions).
Lyn Sims – Are you calling me old? J It looks like you’re in Schaumburg, IL. If you want me to find you someone who can do this, let me know. I withdrew my IL license due to my distaste for the lending regulators and regulation there. I sure miss it though.
Michael J. O’Connor – I do a lot of purchase business in CA and would be happy to help. I think I just closed on a buy after short sale deal about 40 minutes from you. Let me know if it interests you.
Great post Charles. You keep giving away all our secrets!