Thursday, June 7, 2007

Buy now and adjust our payment later.

How can we buy now and adjust our payment when we sell later?

You are fortunate to be in the position of buying now and selling later. It is the ideal scenario for this market, and, unless you are paying with cash, can present challenges if you don’t plan and execute correctly. One of the biggest things Buyers consider is their monthly payment. If you are counting on the equity from your existing home to make your payments comfortable, the traditional thought is that you must sell before you buy to achieve this efficiently. Today, however, you could be better off buying first and selling later.

It is understood that you stand a better chance of getting a better price if your offer is not contingent on selling another property. Even if you have two house payments for a period of time, the negotiated savings of a non-contingent offer often offsets a large part of, if not all of, the additional carrying costs. When you sell and want to reduce the payment on your new house is the rest of the puzzle. Traditional thinking is that you get an adjustable-rate or interest-only loan that will adjust the payment amount after you make a large principal reduction. This can be a good way to go, but there are some items to consider: 1. The rate can adjust before you make your principal reduction. 2. You could pay a 1% conversion charge to convert to a fixed rate. 3. There can be a prepayment penalty for a reduction that large, as much as 6 months interest.

A good alternative is to tell your lender of your intention to make a big principal reduction in a short period of time. Your lender can place your loan with investors that will allow your loan to be “recast”, recalculated. They will look at the loan balance after you pay it down substantially, and adjust the payment according to the new balance and remaining term of the loan. Your interest rate is unchanged, you have minimal paperwork, the fee is usually a nominal $250, and you have the peace of mind of a lower payment for the life of the loan. This is a relatively new practice that isn’t widely known. Approval by the ultimate investor is essential. Be sure to work it out up front as there are other criteria that can limit your options, ie.- it can’t be a HELOC, can’t be an ARM or Interest Only with an adjustment scheduled in next two years, is subject to the terms of the original promissory note, etc..

Our Advice: If you are looking for long term payment stability and are frozen from acting on a new home until you sell, consider one of these alternatives. It is a great time to buy. If you are certain that you will be buying in the Carson Valley then we suggest that you figure out how you can do it now. All things considered, when the market again rises it is doubtful that we will see buying opportunities like this ever again. Discuss your options with your agent and plan a course of action. Look at least six months ahead in your real estate plans. Look at the total cash flow picture. When the dust settles what will your results be? You might find the well executed circuitous route the best in these times.

With a good plan, and by taking action, you can add to your net worth while moving forward with your moving plans. You could be settled while others are still watching … wondering what to do.

When it comes to choosing professionals to assist you with your real estate needs… Experience is Priceless! Lisa Wetzel & Jim Valentine, RE/MAX Realty Affiliates,, 775-781-5472.

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