BiggerPockets

You would write the purchase agreement for the price you're paying. Nothing to do with the loan balances.

I suspect you mean you want to take a property subject to the existing mortgage, since assumable loans are pretty much non-existant for single families. That would all be handled by the title company, or lawyer, if you're in an area where lawyer's do closings. You would get a deed subject to the existing mortgage, and would start paying that mortgage.

The sequence of events was discussed in another post recently. You should be able to find it with the search function. If you're just referring to all this paperwork (deed, loan, etc.) that's all done at once at the closing.

Jon

The purchase agreement is a standard contract between you and the seller. If you were buying retail, your agent would write it up on the official state realtor form, pass it on to the sellers agent would would in turn " present" it to the seller.

It may have a contingency clause in it that says " this offer contingent on being able to acquire financing at such and such a rate and term." And, it may have deadlines for when various loan related things need to happen. But, this agreement doesn't really deal with the financing per se. You would handle that separately with your lender or mortgage broker.

At the closing, you would likely deal with both parts of the transaction - the loan and the property transfer. One of the functions of the title company is to see that all the right paperwork gets signed by all the right people and then sent back to the right address. And to get the money properly distributed. The money would come in from your lender, then be distributed to pay off the existing mortgage with the remains going to the seller. And numerous smaller amounts out to everyone else who has their hands in the deal.

If you're buying a property subject to, the process is similar, but there's no loan papers involved. Instead, there will be (should be, for sure) disclosures to the seller and buyer saying the property is subject to the existing loan, and the loan will remain in the seller's name, and the seller may have consequences if the buyer doesn't pay. Normally a deed will say the property is being transfered free and clear of all liens. The title company verifies that to be true, and the title insurance protects you in case there is a problem later. In a subject to deal, the deed and the title policy will have exceptions for the loan that's being left in place. There likely will still be some money that changes hands, but the biggest part of the money won't change since its still in that old mortgage.

Once upon a time, loans were assumable. You would indeed have to get approved by the lender, and the mortgage would move out of the sellers name and into your name. That's very rare for residential mortgages now. you might find an old mortgage thats assumable. Most, though, will have a " due on sale" clause that says if the property is transfered, the loan is due. And, if its not paid off, they lender has the right to call the mortgage due immediately. Will they? As long as you make the payments, why would they? I don't do this sort of deal, but know folks who do, and have never heard of a loan being called.

Now, I do think there's a risk here. If interest rates go up to 10% or more (they were 18% in the early 80's when I got out of school,) companies may get very aggressive at looking at these loans.

Jon

Option c) would be to finance it yourself. Get money from someone, somewhere and pay off the old loan. That's the traditional way to acquire property. But, it requires you to qualify for the new loan, and the new loan is in your name.

I have no direct experience with subject to. But, I've spoken with numerous people who do, and none of them has ever had a loan called.

You have most of the same closing costs with a subject to transaction that you have with a regular transaction. All the recording fees, legal work, title policies, etc. still apply. That assumes you do the transaction with a title company. If you know what you're doing, you can just take care of it all yourself, skip the title policy, and hope for the best. Not really recommended.

The extra item you'll pay with a lender is the loan origination fee. For a conventional loan, that's typically one point, which is 1% of the loan amount. You can pay more, if you choose, and get a lower rate. For hard money, the points are all over the place. I've seen them anywhere from 0 to 4 points.

Subject to only makes sense if the loan you're taking over works. If the house is worth 100K, and the loan is 120K, you don't want it. That's a short sale candidate, and those will need new financing. If the loan is an ARM that's about to jump to 10%, you probably don't want it. As a way to hold the property while you rehab it prior to sale, it might be OK. But, not for long term financing. If that 100K house has an 50K loan, and the seller is willing to take a little money and let you take over the loan, and its a fixed rate, 5% loan, it might be something to consider.

My guess that many people who do pre-foreclosures are doing short sales, and then flip the house to another investor who has hard money, private money, or their own money. But that's only one option out of many.

Jon