Owner financing with a mortgage

Member since 2022 · 47 posts · 21 votes

Really stupid question, but I thought I heard there was a way around this. Can you owner finance on a property you have a mortgage on? If y'all would confirm or deny, I would appreciate it. Thanks so much as always!

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William Anderson

Rental Property Investor · Mississippi Gulf Coast · Member since 2022 · 205 posts · 168 votes

It's called a wrap-around mortgage. Most lenders include a "due-on-sale" clause in your note. This means if the title transfers you must pay off the mortgage. Having said that, I bought an apartment building once from someone because the owner did not inform me that the property was actually in foreclosure. There was no time to obtain a loan even though I had started the process.

I paid some cash to help her find a place to live for a while and the agreement was that when I eventually financed it or sold it, she would earn an additional payment. I paid her note directly to her bank every month for about one year. Then she did something dumb. She received a tax bill, called the mortgage company, and told them to send it to me.

The demand letter was in the mail within minutes. Fortunately, they gave me 30 days to obtain financing which was no problem. The moral is that the lender would probably not know unless something happened e.g. an insurance claim. You or the buyer would need to be ready to pay off the mortgage on short notice.

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William Anderson
Rental Property Investor · Mississippi Gulf Coast · Member since 2022 · 205 posts · 168 votes
3y
It's called a wrap-around mortgage. Most lenders include a "due-on-sale" clause in your note. This means if the title transfers you must pay off the mortgage. Having said that, I bought an apartment building once from someone because the owner did not inform me that the property was actually in foreclosure. There was no time to obtain a loan even though I had started the process.
I paid some cash to help her find a place to live for a while and the agreement was that when I eventually financed it or sold it, she would earn an additional payment. I paid her note directly to her bank every month for about one year. Then she did something dumb. She received a tax bill, called the mortgage company, and told them to send it to me.
The demand letter was in the mail within minutes. Fortunately, they gave me 30 days to obtain financing which was no problem. The moral is that the lender would probably not know unless something happened e.g. an insurance claim. You or the buyer would need to be ready to pay off the mortgage on short notice.
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Eliott Elias
Investor · Austin, TX · Member since 2021 · 9k+ posts · 5k+ votes
3y
Technically, the bank does not allow this. There is a due on sale clause that is enforced if the deed is ever changed. What many investors do is wrap the existing loan with a owner finance note. They run the risk of the loan being called due.
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Chris SeveneyBusiness Member
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Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
3y
@Mary Eubanks
Depends on the state - some states it’s illegal. Some will do subject to like mentioned.
At end of the day, it’s typically not advised
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Mary Eubanks
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Member since 2022 · 47 posts · 21 votes
3y
Thank you all!
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