Rental Property Investor · Stuart, FL · Member since 2014 · 280 posts · 68 votes
Hey BP,
So, if I buy a property sub2, how will the seller be able to finance another property when they are tied to a 30yr loan? Are they stuck until that loan is paid off?
Just trying to think of all questions a seller may have...
Investor · Aiken, SC · Member since 2014 · 398 posts · 120 votes
11y
I had a discussion with some folks on this topic a while back. The general consensus is that the mortgage will still stay on the seller's credit so long as they own the property. So, with out getting in the weeds on the subject. The seller when applying for another loan would take a copy of the contract that you have with them & show the bank that they are now applying for another mortgage through. Depending on the exact situation, they would count the payments they receive as income for the seller, much the same as when you go to purchase an additional rental property, most banks will count the expected rents towards your income.
The key is to make sure that the seller continues to pay their note so that you don't get in a bind if they stop. I have heard of companines, that for a small fee will process all the payments. Call it ABC Corp. You send your payment to ABC, they write a check for the mortgage and send it to the bank then send the sellers the overage.
Hope I answered your question & didn't convolute things. In this case, I would suggest doing it under a land contract type structure so that you don't trigger any due on sale clauses in the existing first mortgage. I would guess that most sellers would want to be paid off in a period of 3-5 years, at which time you should have enough equity built up to easily get the property under a tradational mortgage with the deed in your name.
South Lake Tahoe, CA · Member since 2014 · 111 posts · 37 votes
11y
I too was curious about this. I think the seller would need to be able to have good enough ratios to qualify for a new loan with this property being counted as well. If they have already purchased another property, this wouldn't likely be an issue. If they have bad credit, your on time payments can help to repair their credit.
If they have only one loan, because you are not notifying the bank, can they write off the mortgage interest on the loan on their taxes like they would be able to if they were living in the property? Is this allowed? Would that cause any challenges for the person who is buying subject to?
Investor · Aiken, SC · Member since 2014 · 398 posts · 120 votes
11y
I had a discussion with some folks on this topic a while back. The general consensus is that the mortgage will still stay on the seller's credit so long as they own the property. So, with out getting in the weeds on the subject. The seller when applying for another loan would take a copy of the contract that you have with them & show the bank that they are now applying for another mortgage through. Depending on the exact situation, they would count the payments they receive as income for the seller, much the same as when you go to purchase an additional rental property, most banks will count the expected rents towards your income.
The key is to make sure that the seller continues to pay their note so that you don't get in a bind if they stop. I have heard of companines, that for a small fee will process all the payments. Call it ABC Corp. You send your payment to ABC, they write a check for the mortgage and send it to the bank then send the sellers the overage.
Hope I answered your question & didn't convolute things. In this case, I would suggest doing it under a land contract type structure so that you don't trigger any due on sale clauses in the existing first mortgage. I would guess that most sellers would want to be paid off in a period of 3-5 years, at which time you should have enough equity built up to easily get the property under a tradational mortgage with the deed in your name.
Great question. After chatting with my lender here, I have a slightly better grasp on subject to. When there is at least 6 months worth of income documentation on a property, whether it be rent payments, or you making payments on a sellers debt, most banks will effectively "wash" that debt and not bring it into the debt to income ratio calculations that they use to qualify a loan. @Jesse Waters brought up an excellent point as well. Putting a 5 year term in the contract that guarantees the mortgage will be paid via refinance or sale is also a great way to handle that objection. If it's a great deal, you may be able to get a tenant in there right away and refinance in 6 months to a year, which is usually the "seasoning" period that banks require.
Hope that's helpful, keep me updated on deals you do and how they go!