Recasting a Mortgage Post Closing

[showtime]

My attorney is moving ahead with the contract. Big question is whether I should pursue a larger mortgage, for which I can get a significantly lower rate, and then re-cast it after two months to the smaller mortgage in which I'm interested.

I'd like your thoughts on how that might go over with the board. Here's probably way more info than you want on what I've been considering.

I told the seller I was going to make a down payment of >70% of the purchase price. The interest rate for that loan would be 4.625%.

A Wells Fargo (WF) mortgage banker suggested I take out a jumbo mortgage, for which he could provide me with a 4.125% interest rate, and then, three months later, recast it - put down the rest of down payment I originally intended to put down and keep the lower interest rate. Doing this:
-Might antagonize the seller
-Might jeopardize my board application. My monthly maintenance plus mortgage for the jumbo would be 28% of my gross income (including 'soft' research grant income and investment income) or 24% of my gross income if I also added back in my pre-tax deductions such as my retirement contribution.

The monthly difference in the two rates is $43. White that's not nothing - $15K over 30 years - it's also an amount I could handle. And who knows, I might sell the place five years down the road.

A mellow mortgage broker from Freedom Mortgage, whom I like personally, has warned me there's a real possibility of scaring off the board. A mortgage banker from a credit union warns me there's a risk WF might not be able to recast the mortgage as promised. And also warns me closing costs with Freedom might be high.

So - I'm leaning strongly toward sticking with the lower mortgage amount for the higher rate of 4.625%. And I'm going to get loan estimates from a few different places to compare closing costs. The credit union might wind up being the way to go.

[ryan_gz]

I would stay away from the jumbo/recasting scenario as the ability to recast is not guaranteed, there's always a ton of fine print with banks and mortgage commitment letters.

Just food for thought, someone told me that credit unions often have lower fees. I'm wondering, any negatives to a mortgage from a credit union of which I should be aware?

[Benny]

Yes. Try to avoid the upsell. They can be like car dealerships where they start offering other financial products/accounts for you to sign up for etc. They may say something like if you sign up and combine certain accounts or switch to other accounts etc., you will get a better rate - Not the case at all. You should be able to get the best rate and terms without the upsell so avoid having them cross-sell you other products at all costs.

Although, most credit unions are known for their ability to offer lower rates than commercial banks, you won’t know that without obtaining 3-5 quotes from various different lenders to compare them to. It is just like purchasing a car. Shop around until you get the best rates and terms. Some credit unions may charge a fee for you in order to be eligible so you would want to avoid those credit unions as well...

Hope this helps! =)

P.S. The credit union will not affect the board approval process in a negative way. The mgmt and board of directors main concern is that you are financially capable and will have no issues obtaining and getting approved for a loan.