How to Purchase a Home Non-Contingent

Purchasing a home non-contingent and then recasting the new loan with proceeds from a previous home sale is a strategic approach for many homebuyers. This method allows you to buy a new property without the sale of your current home being a condition of the purchase, offering a clear advantage in competitive real estate markets. Here’s a comprehensive guide on how to navigate this process.

Understanding Non-Contingent Home Buying

A non-contingent offer means that you agree to buy a home without making the purchase conditional on the sale of your existing home. This can make your offer more attractive to sellers who are eager to close quickly without the uncertainty of waiting for another property to sell.

Advantages:

1. Stronger Position: In a seller’s market, non-contingent offers are often more appealing to sellers, increasing your chances of securing the home.
2. Simpler Transactions: Eliminates the complexities and potential delays involved in aligning the sale of your current home with the purchase of the new one.

Risks:

1. Financial Strain: You may need to manage two mortgages simultaneously until your original home sells.
2. Market Risks: If the market softens, you could find yourself struggling to sell your old home at the expected price.

Strategies for Non-Contingent Purchase

1. Secure Bridge Financing: Bridge loans provide short-term financing to cover the interval between purchasing a new home and selling an old one. This can be a vital resource if you have significant equity in your current home but need liquidity to fund a non-contingent purchase.
2. Utilize Savings: If you have sufficient savings, you could use this to cover the down payment and other purchasing costs, although this requires solid financial planning to ensure you don’t overextend yourself.
3. Lender’s Flexibility: Some lenders might offer a more extended period to make the initial mortgage payments or a mortgage option that incorporates flexibility for buyers expecting to sell their current home soon.

The Process of Mortgage Recasting

Once you’ve purchased your new home and your previous home sells, you might consider a mortgage recast. This is when you make a significant one-time payment towards your new mortgage principal, and the lender recalculates the monthly payment based on the reduced balance, potentially lowering your future payments.

Steps to Recast Your Mortgage after Purchasing a home non-contingent:

1. Check Eligibility: Ensure that your loan type is eligible for recasting. Most conventional loans allow for recasting, but loans like FHA, USDA, or VA generally do not.
2. Contact Your Lender: Approach your lender to discuss the recast option. They will typically require a minimum payment towards the principal to consider recasting, which often ranges from $5,000 to $10,000 or more.
3. Review the Costs: There is usually a fee involved in recasting, which can range from $250 to $500. Weigh this against the potential savings from reduced monthly payments to decide if recasting is worthwhile.
4. Make the Payment: After purchasing a home non-contingent, you make the lump sum payment toward the principal.
5. Recalculate Your Payment: After the payment is applied, your lender will recalculate your monthly payment based on the new lower principal balance, extending over the original term of the loan but at a reduced monthly cost.

Considerations

• Tax Implications: Consider any potential tax implications of selling your home and the impact of using the sale proceeds towards your new mortgage.
• Financial Planning: Ensure that you’re not utilizing all your liquidity in the process, keeping some reserves for emergencies.
• Market Conditions: Keep an eye on market conditions, as shifts in the market could affect both the sale of your current home and the financial benefits of recasting your mortgage.

Conclusion

Purchasing a home non-contingently and then recasting the mortgage requires careful planning and a good understanding of your financial landscape. This strategy can significantly enhance your buying power and flexibility in hot real estate markets. Always consult with a financial advisor and a real estate professional to tailor these strategies to your specific financial situation and market conditions. By carefully managing the risks and preparing for the process, you can navigate these complex transactions with confidence and success.