BiggerPockets

Its possible the seller could provide the sales contract and get a new lender to either ignore the old loan or to at least add the payments into their income when qualifying for the new loan. But, the simple answer is, yes, the existing loan will make it more difficult for the seller to get a new loan.

That's fine, except it's not true is it? If you buy sub2 you are making the payments directly to the bank right? So, when the lender examines the bank accounts and tax returns they will know this "additional income" is not flowing through the seller.

Here is how we instruct our buyers to respond...

"Yes, this loan will remain in your name until a new loan is obtained. I do not know when that will happen and cannot guarantee it will happen before you are ready to buy another home. Different lenders treat this situation differently. We recommend complete honesty. You should disclose you sold this to us "subject to the existing financing" and provide copies of the sales agreement and closing documents you will receive from the attorney closing this transaction. If the lender wants verification we are making the payments, we can provide that and the loan will show as current on your credit report. We will work with you and your future lender but we cannot guarantee you will be able to get a new loan with this one still in place. However, since you are currently behind on your payments a foreclosure would be far more difficult to overcome when applying for a new loan than a loan with the payments currently being made by someone else."

Taz great answer! My response above was to Nick's thing he deleted :)

These sellers wouldn't qualify for another loan anyway. If they are late on this mortgage, they are not going to qualify for another one regardless if payments are being make on the sub2 home. I have had lenders give me exceptions on other things (car payments, credit cards), but they were not recent lates. However I had to provide tons of documentation to support why they were late, etc. Long story short.....don't worry about it.....they are dreaming if they think they are going to qualify for a new loan right away.

Just my 2 cents....

Have the buyers pay a 3rd party note servicing company. Since it's bonded and licensed it will hold more weight showing evidence of payments by the buyer. Also better for the buyer to qualify for a refi or new loan to get it into their name.

Moe

Bryan makes a good point here, that the assumption will be treated as if the property were leased.

Having a loan servicin company is the only way to go to address risk issues with any seller financed deal, IMO. However, we just had a thread this morning where an article suggested hiding your deal, which I am totally against. If you use a servicer, why is another servicer servicing our bank loan? They will know.

Hermann, there are two issues with credit here. The seller, original borrower, will continue to have credit reported to their account, it's their loan. The buyer will not receive credit under that mortgage, but under the agreement, by showing proof of payments over the period as if they were paying rent.

Nick has a good point, I'd love for one of these smooth talker come to me with some speal about doing a deal, there would be hide nailed to a barn door!
This is not just a point of opinion or disagreement, but what is said is very important, and frankly, I have not heard a good approach on any site yet! If you say the wrong thing, a guy who mknows can simply bait you into a corner and zap, you're done for! So watch yourself out there, no BSing! With that, good luck, LOL. Bill