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Advantages and disadvantages of buying a home with a subject-to loan

On Behalf of | May 18, 2023 | Real Estate |

If you are looking for a unique way to buy your dream home in New York, finding one where you can purchase it using subject-to loans may be the perfect solution. There are several advantages and disadvantages to purchasing a home using this strategy.

How do subject-to home sales work

The current owner of the home took out a $200,000 mortgage. He has paid $50,000 on that mortgage. Therefore, there is $150,000 remaining to be paid to the mortgage company. He needs to move to a different community for work. He lets you take over the payments on the New York home without telling the mortgage company. When you have paid the remaining balance, you have purchased the home in this type of transactional real estate.

Advantages of subject-to home loans

One significant advantage is that you may get a lower interest rate on these homes if the rate has gone out since the buyer took out the loan. Additionally, people wanting to buy a home that find traditional financing challenging to obtain often find this an attractive option. Since there is no closing on the property, these deals are usually cheaper.

Disadvantages of subject-to loans

If the current owner files for bankruptcy, you may lose the home and the money you invested into it. Some mortgage companies call loans due if the property transfers to a new buyer. You may lose the house if you do not have the cash to pay off the mortgage and cannot get financing in your name. Finally, insuring the home can be very challenging.

Finding homes where the current lender is willing to do a subject-to loan can be challenging. Usually, these deals are worked out where the current owner needs help keeping up with the mortgage. Additionally, the home is usually in poor condition and may need extensive repairs.