I am purchasing a house from a private seller and they are ok with me taking over their payments. I know some banks can require the payment in full once title transfers over. I live in state of Ohio and the mortgage currently sits with TelOhio credit union. I am looking into a real estate attorney but has anyone done this before? Do I need to get the bank involved or is it just a contract between me and seller?
Well, you're not Assuming the loan....that is typically only allowed on fha/va loans and requires you to qualify with the bank, just like for a new loan. You are buying Subject To the loan. Yes, there is a possible due on sale risk. The general advice is to Not notify the bank...get a limited POA to deal with the loan from the seller, and have them sign the appropriate disclosure about the risk to them in doing this.
@Wayne Brooks thanks for info so maybe not right term...wrap mortgage maybe? I am still new to real estate and I am already approved for mortgage but because I want to buy more houses and this seller was fine with me making his payments it allows me to get other houses financed. So what’s your advice what should I do?
@Denean Smith A wrap is a form of sub2, where the owner is cruelly carrying a mortgage for more than his underlying mtg, and the Seller gives you a mtg.
I think what you are doing is a straight sub2....title passes to you, his mtg stays in his name. There is risk to the seller since if you don’t pay, he can’t foreclose on you (he can sue you), and the mtg still affects his credit.
Definitely find a local real estate attorney familiar with the required documentation/disclosures for a sub2.
Another issue that is tricky is the insurance...insurance in the seller name does you no good, and insurance in your name, which must be sent to the lender, can alert them to the change in title.
Hopefully you are able to refinance the property in the small chance the lender invokes the due on sale clause.
@Wayne Brooks thanks so much for information I did not even think about the insurance aspect, I would definitely want the insurance to be in my name... the more I think about it, it may just be better to get mortgage in my name and move seller out of picture altogether. This will be second property I have with mortgage I just thought it was a viable option to keep my credit free to buy more. I guess I will deal with creative financing once I get to 5th property.
I wouldn’t go completely negative on subject to financing. If done correctly the note rarely gets called. Search subject to in these forums and you’ll get a wealth of information. Despite some risks for both parties it’s a viable strategy.
I'd be careful relying on the "the note rarely gets called" because if it does, you put the home owner in a really bad spot if you can't pay off the note.
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