Home Repurchases

Buying and Selling

• Understand the pros and cons of being both a buyer and a seller. An advantage of repurchasing is that there may be a profit from the sale of a previous house to fund a hefty downpayment and closing costs.
• The biggest risk is that you may have to make payments on two houses for a while or require a bridge loan if the old house doesn’t sell in time for the closing on the new home. If you are borrowing at the outside limits of your income, it will be difficult to repay two, and possibly three, loans and lenders may not approve financing.
• To buy some breathing room (since the purchase of a new home depends upon another buyer getting a loan to purchase your old home), consider extending the time until closing on a new house, sell first and buy later, or add a contract clause making an offer to buy a new home contingent on the sale of the old one. This is easier to do when real estate sales are slow than in a “hot” real estate market where there are many competing buyers.

Consider All Costs

• Consider all the costs associated with repurchasing a home, in addition to the purchase price, before making a move. For starters, there are realtor commissions, generally 2 percent to 6 percent of the sales price of the old home being sold.

• Closing costs could add 3 to 5 percent of the new home’s value, depending how many points are paid up front as interest. A point is 1 percent of the mortgage amount ($1,000 on a $100,000 mortgage, for example).
• If the new home is larger than the old home, or in a more expensive location, property taxes, utilities, some homeowners (those who do not have to relocate for a new job) may decide that it is cheaper to remodel than repurchase.

  Save on the Mortgage

  • If a repurchase is made, consider applying for a mortgage with the same term as the number of years left on the previous one (such as a 20-year instead of a new 30-year mortgage). This will save thousands of dollars in interest.
  • An alternative cost-saving strategy is to add one-tenth of the principal and interest portion of a monthly mortgage payment each month to the balance due, which is the same as making 13 payments per year, thereby shortening the loan term.