Buying a mortgaged house
Just as a renter doesn't care what the landlord's mortgage is, the buyer of a house shouldn't care what the seller paid, what the current mortgage is, or any other details of the seller's finances.  Two identical houses may be worth $400K. One still has a $450K loan, the other is mortgage free. You would qualify for the same value mortgage on both houses. All you and your bank should care about is that the present mortgage is paid or forgiven by the current mortgage holder so your bank can have first lien, and you get a clean title.  To answer the question clearly, yes, it's common for a house with a mortgage to be sold, mortgage paid off, and new mortgage put in place. The profit or loss of the homeowner is not your concern. If someone owns a house that is not paid off...can someone buy it by taking another mortgage? Yes, but I'm not sure why you think the buyer would need to take another mortgage to buy it. If someone sells their home for X dollars, then the buyer needs X dollars to buy the house. How they get that money (use cash, take out a mortgage) is up to them. During the closing process, a portion of the funds generated from the sale are diverted to pay off the seller's loan and any leftover funds after closing are pocketed by the seller. What kind of offer would be most sensible? I assume that in this case the current owner of the house would want to make a profit. The amount that the house is sold for is determined by the market value of their home, not by the size of the mortgage they have left to pay off. You make the same offer whether they own their home or have a mortgage. "Go on a website that has real estate listings.  Find similar homes in the same neighborhood and list out the prices.  Once you have prices, pick out two with different prices and call the realtor of the more expensive listing.  Tell that realtor about the other listing and ask why their listing is more expensive.  Compare their answer to the home that you are considering buying.   For example, they may say that their house has a newly remodeled kitchen.  Does the house you are considering have a newly remodeled kitchen?  If so, then use the higher priced listing and throw out the cheaper one.  If not, use the cheap listing and throw out the expensive one.   Or they might say that the expensive house is in a better location than the cheaper house.  Further away from traffic.  Easier to get to the highway or public transportation.  If so, ask how the location compares to the house you are actually considering.  The realtor will tell you if the listings are comparable.   When I talk about ""similar homes,"" I mean homes that are similar in square footage, number of bedrooms, and number of bathrooms.  Generally real estate sites will allow you to search by all of these as well as location.   After all this, the potential seller may still turn you down.  If he really wanted to sell, he'd have suggested a price.  He may just be seeing if you're willing to overpay.  If so, he could turn down an otherwise reasonable offer.  How much he is willing to take is up to him.   Note that this would all be easier if you just bought a house the normal way.  Then the realtors would do the comparables portion of the work.  You might be able to find a realtor or appraiser who would do the work for a set fee.  Perhaps your bank would help you with that, as they have to appraise the property to offer a mortgage.   You asked if you can buy out a mortgaged house with a mortgage.  Yes, you can.  That's a pretty normal occurrence.  Normally the realtors would make all the necessary arrangements.  I'm guessing that a title transfer company could handle that." "Based on what you asked and your various comments on other answers, this is the first time that you will be making an offer to buy a house, and it seems that the seller is not using a real-estate agent to sell the house, that is, it is what is called a FSBO (for sale by owner) property (and you can learn a lot of about the seller's perspective by visiting fsbo.com). On the other hand, you are a FTB (first-time buyer) and I strongly recommend that you find out about the purchase process by Googling for ""first-time home buyer"" and reading some of the articles there. But most important, I urge you DO NOT make a written offer to purchase the property until you understand a lot more than you currently do, and a lot more than all the answers here are telling you about making an offer to buy this property.  Even when you feel absolutely confident that you understand everything, hire a real-estate lawyer or a real-estate agent to write the actual offer itself (the agent might well use a standard purchase offer form that his company uses, or the State mandates, and just fill in the blanks). Yes, you will need to pay a fee to these people but it is very important for your own protection, and so don't just wing it when making an offer to purchase. As to how much you should offer, it depends on how much you can afford to pay. I will ignore the possibility that you are rich enough that you can pay cash for the purchase and assume that you will, like most people, be needing to get a mortgage loan to buy the house. Most banks prefer not to lend more than 80% of the appraised value of the house, with the balance of the purchase price coming from your personal funds. They will in some cases, loan more than 80% but will usually charge higher interest rate on the loan, require you to pay mortgage insurance, etc. Now, the appraised value is not determined until the bank sends its own appraiser to look at the property, and this does not happen until your bid has been accepted by the seller. What if your bid (say $500K) is much larger than the appraised value $400K on which the bank is willing to lend you only $320K ? Well, you can still proceed with the deal if you have $180K available to make the pay the rest. Or, you can let the deal fall apart if you have made a properly written offer that contains the usual contingency clause that you will be applying for a mortgage of $400K at rate not to exceed x% and that if you can't get a mortgage commitment within y days, the deal is off. Absent such a clause, you will lose the earnest money that you put into escrow for failure to follow through with the contract to purchase for $500K.  Making an offer in the same ballpark as the market value lessens the chances of having the deal fall through. Note also that even if the appraised value is $500K, the bank might refuse to lend you $400K if your loan application and credit report suggest that you will have difficulty making the payments on a $400K mortgage.  It is a good idea to get a pre-approval from a lender saying that based on the financial information that you have provided, you will likely be approved for a mortgage of $Z (that is, the bank thinks that you can afford the payments on a mortgage of as much as $Z). That way, you have some feel for how much house you can afford, and that should affect what kinds of property you should be bidding on."
I think  the cleanest way to do this is to rent the house from your father for 2 years, possibly adding an option to buy at a set price to the lease agreement.  That takes care of any gift issues, and avoids complications like you living in a house that you couldn't afford to own otherwise.  If/when you are able to afford a mortgage, get a mortgage on the house and buy it from your father.   Will a bank be willing to take out a mortgage on a house that I technically own for the full amount? I would not take out a mortgage for anything more than 80% of the house's market value.  Anything more than that, and you need to pay mortgage insurance, which will increase your monthly payment for no benefit to you.   My biggest concern is that you won't be able to afford an 80% mortgage after 2 years.  If your father really wants to keep the house in the family then he should either keep the house and rent it to you, or give you the down payment as a gift (keeping under the maximum gift to avoid taxes). If neither you or your father cannot afford the house you may have no choice but to sell it.  I would not advise you make a bad financial decision purely for sentimental reasons. No. This logic is dangerous.  The apples to apples comparison between renting and buying should be between similar living arrangements. One can't (legitimately) compare living in a 600 sq ft studio to a 3500 sq ft house.  With the proposal you offer, one should get the largest mortgage they qualify for, but that can result in a house far too big for their needs. Borrowing to buy just what you need makes sense. Borrowing to buy a house with rooms you may never visit, not a great idea.  By the way, do the numbers. The 30 year rate is 4%. You'd need a $250,000 mortgage to get $10,000 in interest the first year, that's a $312,000 house given an 80% loan. On a median income, do you think it makes sense to buy a house twice the US median?  Last, a portion of the tax savings is 'lost' to the fact that you have a standard deduction of nearly $6,000 in 2012. So that huge mortgage gets you an extra $4000 in write-off, and $600 back in taxes.  Don't ever let the Tax Tail wag the Investing Dog, or in this case the House Dog.  Edit - the investment return on real estate is a hot topic. I think it's fair to say that long term one must include the rental value of the house in calculating returns. In the case of buying of way-too-big house, you are not getting the return, it's the same as renting a four bedroom, but leaving three empty.  If I can go on a bit - I own a rental, it's worth $200K and after condo fee and property tax, I get $10K/yr. A 5% return, plus whatever appreciation. Now, if I lived there, I'd correctly claim that part of my return is the rental value, the rent I don't pay elsewhere, so the return to me is the potential growth as well as saved rent. But if the condo rents for $1200, and I'd otherwise live in a $600 apartment with less space, the return to me is lost. In my personal case, in fact, I bought a too big house. Not too big for our paycheck, the cost and therefore the mortgage were well below what the bank qualified us for. Too big for the need. I paid for two rooms we really don't use. Generally, interest-only mortgages are a bad idea, because a lot of people get them so that they can buy more house than they could otherwise afford (lower payment = affordable, in their minds).  If the house continues to go up in value, they probably get away with it, because when the balance becomes due, they can refinance.  However, the last few years has shown how risky that strategy can be, and this kind of things is what cost a lot of people their houses. In your case, if the house is something you could afford on a regular 15 or 30-year mortgage, and you really are as disciplined as you say you are, you might get away with it.  But you have to take into account the risk, and consider what happens if there is a job loss or similar difficulty in the future. Another thing to consider is the term of the mortgage.  How many years will you get this lower interest rate?  Interest rates are at historic lows right now, and pretty much everyone thinks they're going up soon.  You might be better off locking in a higher rate for 15 years. "The logic ""the interest rate on the mortgage was so low it didn't make sense not to buy"" is one reason the housing bubble happened. The logic was that it made the house affordable even at high prices. Once the prices collapsed people still had affordable payments, but were unable to sell because they were upside down on the mortgage. If you can refinance to a 15-year mortgage, or from a adjustable mortgage to a fixed rate mortgage. it can make sense. You can save on the monthly payment, and on the total cost of the mortgage. But don't buy to take advantage of rates; or to save on taxes; or to build a guaranteed equity. These can be false economies or things that can't be gaurenteed. Of course if nobody spends money, the economy will stay poor. As to hidden details. Only purchase housing you want to own for the long haul. If you expect to flip it in a few years, you might not be able to. You might end up stuck as a long distance landlord." Two years ago, I wrote an article titled Student Loans and Your First Mortgage in response to this exact question posed by a fellow blogger.  The bottom line is that the loan payment doesn't lower your borrowing power as it fits in the slice between 28% (total housing cost) and 38% (total monthly debt burden) when applying for a loan.  But, the $20K is 20% down on $100K worth of house. With median home prices in the US in the mid-high $100Ks, you're halfway there.  In the end, it's not about finance, it's a question of how badly you want to buy a house. If I got along with the parents, I'd stay as long as I was welcome, and save every dollar I could. Save for retirement, save for as large a downpayment as you can, and after you buy the house, pay the student loan aggressively. I moved out the week after I graduated. Start with the list of mortgage companies approved to work in your area. There are 80 within 10 miles of my house, and more than 100 in my county. Pick ones you know because they are established businesses in your area, region, or even nationally.   A good place to start might be with your current lender. The risk you seem to be worried about is a scam or a trick. In the recent past the scams were ones where the home owner didn't understand teaser rates, and the risk of interest only and pick-your-payment loans. The simpler the bells and whistles, the less likely you are to be embarking on a risky transaction. It can't hurt to ask an organization like the BBB or neighbors, but realize that many people loved their exotic mortgage until the moment it blew up in their face. So for 5 years your neighbor would have raved about their new mortgage until they discovered how underwater they were.  Regarding how smoothy the transaction is accomplished, is hard to predict. There is great variation in the quality of the loan officers, so a great company can have rookie employees. Unless you can get a recommendation for a specific employee it is hard know if your loan officer is going to give great service.   When getting a mortgage for a purchase, the biggest risk is getting a mortgage that results in a payment you can't afford. This is less of a risk with a refinance because you already have a mortgage and monthly payment. But keep in mind some of the monthly savings is due to stretching out the payments for another 30 years. Know what you are trying to do with the refinance because the streamlined ones cant be used for cash out. All of the answers given so far are correct, but rather narrow. When you buy a 30-year-mortgage, you are buying the right to pay off the debt in as long as 30 years.  What you pay depends on the interest rate and how long you actually take to pay it off (and principal and points and so on). Just as you are buying that right, the mortgager is selling you that right, and they usually charge something for it, typically a higher rate.  After all, they, and not you, will be exposed to interest risk for 30 years. However, if some bank has an aneurism and is willing to give you a 30-year loan for the same price as or lower than any other bank is willing to go for a 15-year loan, hey, free flexibility.  Might as well take it.  If you want to pay the loan off in 15 year, or 10 or 20, you can go ahead and do so. The cleanest way to accomplish this is to make the purchase of your new house contingent on the sale of your old one.  Your offer should include that contingency and a date by which your house needs to sell to settle the contract.   There will also likely be a clause that lets the seller cancel the contract within a period of time (like 24-48 hours) if another offer is received.  This gives you (the buyer) at least an opportunity to either sell the house or come up with financing to complete the deal. For example, suppose you make an offer to buy a house for $300,000 contingent on the sale of your house, which the seller accepts.  In the meantime, the seller gets an offer of $275,000 in cash (no contingency).  The seller has to notify you of the offer and give you some time to make good on your offer, either by selling your house or obtaining $300,000 in financing.  If you cannot, the seller can accept the cash offer. This is just a hypothetical example; the offer can have whatever clauses you agree to, but since sale contingencies benefit the buyer, the seller will generally want some compensation for that benefit, e.g. a larger offer or some other clause that benefits them. Or do I find a house to buy first, set a closing date far out and then use that time to sell my current one? Most sellers will not want to set a closing date very far out.  Contingency clauses are far more common. In short, yes it's possible, and any competent realtor should be able to handle it.  It also may mean that you have to either make a higher offer to compensate for the contingency and to dissuade the seller from entertaining other offers, or sell your home for less than you'd like to get the cash sooner.  You can weigh those costs against the cost of financing the new house until yours sells.