Trying to keep this simple. My partner and I recently moved to a new state for job offers. We went from a low-cost to a mid-cost area.
We already moved and bought a home in November. We put 5% down on a $390K house, interest rate is 5.99%, and our monthly payment (PITI) is $2800.
Our old home has been on the market since before we left, but it’s taking longer to sell. We bought it in 2020 with 20% down at a 2.7% rate. The purchase price was just under $200K, and our monthly payment is $1100. It’s currently listed at $270K. We had two offers, but both backed out during inspections.
Our combined take-home pay is $11,500 (not counting bonuses or side gigs). We also put 15-20% into retirement savings. We can afford both mortgages without major lifestyle changes, but obviously, we’d rather not.
The main question: We have enough savings to put an extra 15% down on the new home and can do a recast before March 15 with no fees. This would remove PMI and lower our monthly payment by $300-500. But doing this would leave us with only $10K in liquid savings after keeping our emergency fund intact.
I had hoped we’d have the old home at least pending before doing this, but now I’m wondering if we need to set aside more for potential repairs. The old home is in decent shape, but if buyers are walking away, maybe there are bigger issues.
At this point, I’d still like to go ahead with the recast, but I’m looking for other opinions. Should we wait or move forward? Thanks.
At 6%, a lump sum payment that also removes PMI makes sense.
Recasting itself is a separate decision. It gives you the flexibility to pay less monthly, even if you still choose to pay more.
What’s the rush? Why not wait a few months until the house sells? If you have a solid emergency fund after the recast, go for it. But if cash flow is tight, it’s probably smarter to wait. The recast fee later isn’t huge in the grand scheme of things.
@Nash
Thanks! I think I’m just getting impatient. You’re right, I probably don’t need to rush this. I’d save some interest and avoid a recast fee, but keeping extra cash on hand seems like the smarter move.
If buyers are backing out after inspections, there’s likely an issue with the house. You might need to either fix the problems or lower the price. Have you been able to get a copy of any of those inspection reports?
Removing PMI is good, but we don’t know enough about your monthly budget to say if the recast is a good idea. A reassessment later isn’t that expensive, so I wouldn’t stress too much over the timing.
@Isaac
Yeah, we’re aware something is off with the old home. We did a lot of updates, but it’s an older house and probably has more hidden issues. I’d be open to lowering the price just to sell it.
We also considered renting it out, but being long-distance landlords isn’t something we want. So we’re stuck making the payment until we either 1) find a buyer willing to take it as-is (probably at a much lower price), or 2) figure out what’s wrong and fix it (which could be expensive).
As for our budget:
Fixed expenses (mortgages, student loans, gas, car payments, groceries, phone, internet, pet care) are about $7500 a month.
Discretionary spending is usually between $0-2000 per month.
We don’t carry credit card debt, and our new mortgage has the highest interest rate of any loan we have. So if I put a lump sum toward anything, it would be that. But for now, I’m considering just leaving it in our high-yield savings account until we figure out what’s happening with the old house.
@TomHenry
Sounds like lowering the old house price and listing it as ‘as-is’ could be the best move. You could talk to your realtor about adding that to the listing. Once it sells, then you can decide about the recast.
By the way, how are your cars? And you didn’t mention your income.
@Isaac
Thanks, we talked to the realtor again today and made a plan. As for the lump sum, I guess I’m just trying to decide if I should go ahead with the recast or wait.
Income is in the original post. One car is paid off, the other has $12K left at 3.9% interest.
@TomHenry
With $11.5K income and $7.5K in fixed expenses, that leaves about $4K in flexibility each month.
I’d wait on the recast. If you sell the old house soon, you can use that money for a lump sum to get rid of PMI anyway. Since you already have $4K of flexibility, there’s not much benefit in locking cash into the mortgage right now.
I was in a similar situation a few years ago. Bought a new house, had a deal on the old one, and then the buyer backed out last minute.
We had a 20% down payment, so we went ahead with buying the new house while relisting the old one. It was stressful making two payments, but it didn’t take long to sell.
Recasting wasn’t worth it in our case. The process was a hassle, and the cost wasn’t high enough to justify doing it before the sale. I’d wait until you sell, then decide. No reason to drain savings while holding two mortgages.
@TomHenry
Honestly, keeping cash on hand was the best decision for us. It helped with the stress of not knowing how long it would take to sell. Hopefully, you get a buyer soon and can do the recast then.
By the way, wiring six figures for a recast was a nerve-wracking experience. Felt great to do it, but I kept triple-checking everything.