First things first, I am in no means an expert nor am I an attorney (Consult an attorney & please don't take this as legal advice)... I just figured that there are some learning experiences in this deal that may be helpful to some of you, so I figured it was worth it to share the story! If any of you have any questions/concerns/tips, please feel free to message me/reply on this thread!
Bottom line we were able to purchase this property by buying it "Subject to the existing mortgage". Essentially what that means is we went and bought this deal while keeping the current financing in place. At the time of purchase there was a VA loan on the property with a total balance of $365k. This existing loan balance would be included in our total purchase price (Considered a credit to us on the final HUD statement), which allowed us to purchase the deal without bringing an additional $365,000 to the closing table & allowed us to not need to qualify for a new loan in our name.
Before I move forward, you need to know the risks (This is the one that I am aware of... there may be even more) for purchasing a deal subject to the existing mortgage. The "Due on Sale" clause is defined by wikipedia as follows: "A due-on-sale clause is a clause in a loan or promissory note that stipulates that the full balance of the loan may be called due (repaid in full) upon sale or transfer of ownership of the property used to secure the note. The lender has the right, but not the obligation, to call the note due in such a circumstance."
What that means, is once you close on the property, because the existing note is still in place... but the property has been Sold, the bank has the ability to literally call the note due & force the buyer (us) to pay off the full existing balance of the note ($365k). If we don't pay it off in a specified timeframe, the bank can move forward and foreclose on the property. Which means any financial investment into the property prior to the foreclosure will be lost (Repairs, down payments, etc). Once again, I'm not an attorney, and previous patterns do not guarantee future results, but as of this exact second that I'm typing this post, the banks very rarely move forward and call the note due as long as the buyer continues to make payments on the note.
For the sake of not making this single post too long... I am going to finish this discussion post tomorrow morning around the same time and I will link part 2 to this post right after I finish.
In pt.2 I will be including
A) Exactly how we found the deal
B) The Appt (Objections, how we overcame objections, exact numbers/structure of the deal)
C) The closing (How we found an attorney that works with deals like this)
D) the Repairs (How we kept our entire budget @$30k/How we financed it)
E) How we're achieving Air BNB Success on the Property
F) How this property set us up to buy a quad (Hopefully with $0 down)
Whole lots of good stuff coming up... and after typing it all out, I could see it possibly turning into a 3 part discussion post if Pt. 2 gets too long! lol
Also to make sure y'all are interested in a pt. 2 & to bring more people to this thread (more people will be able to take some value out of this!) please vote for this post & reply below.
Pt. 2 BP Link: (Not posted yet)
