SO MANY WAYS TO BUY (PART 1) BRUCE KELLOGG
#2 – Assume an Existing Loan
This involves applying to the
existing lender to replace the
existing borrower. You will have to
qualify as a new borrower, and pay
fees. In this low interest rate
environment, it can be preferable to
simply assume the loan. Some
commercial and private loans are
assumable as well as institutional
loans on 14 residential units.
#3 – “Subject to” an Existing
Loan
Unlike
formally
assuming
an
existing loan, this method involves
taking title to the property without
disturbing the loan, and just start
paying on it. Conceptually, it is
simple, but in practice it is not.
Most loans nowadays are “due on
sale”, so if the lender finds out the
property was transferred, they can
“accelerate” the loan and call it “due
and payable”. They have the right
to foreclose if they are not paid, or
a satisfactory arrangement made.
#4 – Create Financing
When a property is purchased, the numbers have to add up. If the
down payment and the existing or new loans do not equal the
purchase price, then financing has to be created. Often, the seller will
agree to “carry back” a created loan for the buyer to complete the
purchase. This “note” can be sold, often at a discount, or borrowed
against by the seller, so they are not stuck with it. Or, they might like it
and keep it in their pension fund, for example. The terms of the loan
are whatever the parties agree, as long as the terms are legal.
#5 – Create a “Wraparound” Loan
One really useful created loan is called a “Wraparound” or “All
Inclusive” loan. This is where a loan is created that “wraps” or
“Includes,” the existing loan(s), which the buyer executes in favor of
the seller. Usually , the “wrap” includes the part of the purchase price
that is unpaid by the down payment. It’s basically the “carryback”
amount due to the seller over time.
There are a couple of benefits to the “wrap”. First, it is a useful way to
work with a “subject to” transaction, described above as being
somewhat complicated.