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Buying Subject to an Existing Loan

The typical cost of a new home today is about $326,800. So, if you are in the market for a new home, now may be a great time to consider buying.
Still, many new homeowners don’t consider that along with copious amounts of paperwork, paying a down payment for a home is just the beginning of various closing costs that must be paid to finalize a home sale.
Depending on where you live, there could be dozens of closing costs you will have to pay to satisfy closing the sale. Your closing costs could be commensurate to anywhere between 2% and 5% of the total loan amount.
For your information, $16,340 is 5% of $326,800. Imagine having to pay $16,340 in closing costs just to seal the deal to buy a new home!

Buying Subject to an Existing Loan

That is the financial reality new homeowners always deal with when negotiating through a mortgage application to buy a home. It is always said that homeownership is the American dream, but the expense of buying and owning one is never expounded upon enough.
One way to significantly cut down on closing and recurring costs relative to buying a home is to buy a home subject to an existing loan. This basically means that you, as the buyer, unofficially take over the seller’s existing mortgage payments.
The mortgage still officially stays in the seller’s name, and the mortgage lender stays unaware of the new financial arrangement (or voluntarily looks the other way).
As the buyer, you have no personal or legal liability, relatively speaking, to pay the mortgage since the original lender is not involved. So, it is kind of like taking over a mortgage on the honor system to save money on buying a home.
Sounds interesting to you? Well, nothing in life is ever that simple. If you need guidance considering your options when buying a home, contact the Loan Brothers at Mares Mortgage
Related Buying a Foreclosed House

Buying a Home “Subject To” Basics

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As previously explained, buying a home subject to an existing loan in an unofficial mortgage arrangement where the buyer takes over the payments but not contractual ownership of the mortgage.
Relative to such an agreement, the existing unpaid balance of the mortgage is re-calculated to become a large portion of the buyer’s bidding price.
Also, you may also have to pay for any missed mortgage payments prior to entering the unofficial arrangement.

Unofficial Arrangements

The only serious paperwork you may sign is changing the house’s deed over to your name under this arrangement. 
As the buyer, if you decide to cease making mortgage payments, then the house could fall into foreclosure under the seller’s name.
You may decide to sell the house in the future while under a “subject to” arrangement. In such a scenario, you would have to make unofficial arrangements with the original seller. Even then, you wouldn’t be responsible or contractually liable to make any mortgage payments.
Make sure you understand the arrangement you potentially enter into after an agreement. Know the difference between a “subject to” and an “assumable mortgage.”
Related Joint Mortgage Vs. Joint Ownership: What’s the Difference?

Subject To Vs. Assumable Mortgage

An assumable mortgage is a mortgage that officially transfers ownership from the seller to the buyer. When you assume a mortgage, you are essentially stepping into the seller’s mortgage obligations as if the mortgage was originally yours.
The most important difference between a subject to and an assumable loan is that an assumable loan is initiated with the full knowledge of the mortgage lender.
In this situation, the interest rate should remain the same. You will assume legal ownership of the mortgage minus what is already paid. 
For example, if the seller has paid off 5-years of a 30-year mortgage, then you are only contractually liable to pay off the next 25-years.
Unless it is specifically stipulated in the mortgage contract, most mortgages are not assumable. Usually, only FHA, USDA, and VA mortgages are assumable. 
Almost all traditional mortgage loans are not assumable. Most will feature non-assumable stipulations in the contract
Now that we understand that distinction, it’s time to consider the pros and cons of buying a home subject to an existing loan.


dollar advantage
You may be about to save anywhere between $257 to $3,084 annually on your mortgage payments by buying a home subject to an existing loan. 
The exact amount you may save on mortgage costs will ultimately depend on your own personal circumstances.
For most mortgage applications, you need a credit score of at least 620 before you can even applyA seller may be amenable to a subject to mortgage arrangement to help salvage their credit score
Additionally, even though you are not legally responsible for the mortgage, as long as you continue paying the seller’s mortgage, you are helping them to continuously build or rehab their credit.
Buying a home subject to an existing loan also expedites the time it takes to close a sale. It typically takes about 56 days to sell a home on the open market, although it can take much longer than that.
It’s much easier to qualify for a mortgage under this unofficial arrangement as well. 


Trying to buy a home subject to an existing loan can be an extremely complicated process if you don’t know what you are doing.
For one thing, the seller will have to deal with foreclosure if you stop paying the mortgage. In that event, there is nothing keeping the seller from informing the mortgage lender of the informal arrangement. A lawsuit could result.
If the mortgage lender found out about your arrangement, they could expedite the entire mortgage’s full payment as soon as possible. You still wouldn’t be liable to pay it, but this scenario would be a big mess for everyone involved.
Insuring the home wouldn’t be impossible but could become very complicated to accomplish under this scenario. How would you deal with a claims adjuster in the event of an incident? Additionally, such a situation is another way for the original mortgage lender to find out.
Unless you and the seller work together and constantly stay on the same page, there are just too many ways for the original mortgage lender to find out.

Carefully Consider Your Options

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There are many ways to buy a home. Make sure that you fully understand your options before you begin considering the more unconventional home buying options.
Contact the Loan Brothers at Mares Mortgage today to learn about all of your home buying options.
Related Everything You Need to Know about Cosigning a Mortgage Loan


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