The emerging trend of house-swapping can be a strategy for downsizing your home and your mortgage.

In the card game of "Go Fish," players take turns asking for the cards that they need to make a pair. Imagine playing the same kind of game with your home-"Do you have a four-bedroom with a nice backyard?" Only in this game, both players end up winning.

An eye for an eye

Amid a depressed real estate market, homeowners are taking matters into their own hands with a new practice called house-swapping. This arrangement is between two homeowners, where each agrees to buy the other's home. House swapping presents an intriguing opportunity for homeowners who are strapped with expensive mortgages. Without the house swap alternative, struggling mortgage borrowers can only avoid foreclosure by selling the property or refinancing to a longer term or lower rate mortgage. Given the state of the real estate market, selling the property quickly is virtually impossible. And refinancing won't be a breeze either. Lending guidelines have gotten tougher, and many homeowners just don't have the qualifications to refinance. Those homeowners might be able to downsize their homes and mortgages with a house swap. The trick is to find other homeowners who are willing and able to upsize. As house swapping becomes more prevalent, this will become easier to do. Several websites facilitate house swapping by offering free or low-cost listings for homeowners. Property owners simply register with the site by describing their property and exchange criteria. They can then search other listings to see if there are any good matches.

Not a perfect system

Like anything else, house swapping has its pros and cons. Let's start with the cons:

  • No perfect matches. Both swappers will have to be lenient in their criteria for the new home. A homeowner who demands a corner-lot property with a skylight in the master bathroom may never find such a property available for a swap.
  • Potential for fall-out. The worst possible outcome is that only half of the swap goes through. House swappers should work with one Title Company and ensure that title officers thoroughly understand the situation. The closings should be handled simultaneously to minimize the potential for one side to drop out.

On the plus side, swappers may benefit from:

  • No agency fees. House swapping can be managed without a real estate agent, which saves both homeowners thousands in agency fees.
  • Even playing field. In a swap situation, parties are matched based on their complementary objectives. Both sides know that they'll have to compromise to complete the deal. This is a different mindset from the traditional sale, where buyers and sellers are pitted against each other, while agents negotiate in the middle.

If you've run out of mortgage refinance options, a house swap might be the right move. If all goes well, you could "fish your wish," and end up in a far better place financially.

Published on March 2, 2008