Hello BP family. I need some help analyzing the nuances of a deal.
I am buying a house where the mortgage stays in the current seller's name. I'm going to buy the house but pay the mortgage for her since she has such an unbelievable rate. I want to pay her mortgage for 7 years and then I would need to refinance or sell the house.
What is the best way to structure the contract for this type of deal? Are there any pitfalls I need to watch out for? Due on sale clauses, etc.
Thanks in advance for the advice.
I have done this several times. I used a land contract. If you are buying for what remains on her mortgage then the terms would be subject to her existing financing with payoff of he balance at 7 years. I have also done it where I create my own terms. Let's say they have a mortgage with $50,000 remaining with a 2.5% interest rate and you really buying at $70,000. I could amortize $70,000 over 15 years at 3% interest and make those payments directly to the seller's mortgage with the amount of your payment very the existing payment to go to principle paydown. Then the same balloon at 7 years where the mortgage will be cleared and the seller will get check as well. Whatever works best for all parties.
As for the pitfalls. The mortgage company could call the loan due in full as that transaction does violate the due on sale clause. It is not very common but is a very real possibility and you and the seller should be aware of that and have something in writing acknowledging this and some plan of action to deal with it. I have done these transactions for 3 years or less and a 7 year contract could leave the seller getting antsy if they they do not then qualify for and t other mortgage because of the debt on their books. You also need to insurance the property in your name and the seller can cancel their policy although the seller and existing mortgage many will be named as additional insured on your policy.
Land contracts have worked very well for me but communication is key.
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