She wants $28k for her equity. What am I actually buying?

Take the three items in order.

Due-on-sale. Most conventional mortgages contain a clause letting the lender accelerate the loan, meaning demand the full balance, if the property transfers without consent. A subject-to deed transfer generally triggers that right. Lenders often do not act while payments arrive on time, and that is a pattern of behavior, not a rule you can rely on. Whether the clause gets enforced and what remedies exist is a legal question in your state, so get a real estate attorney licensed there to read the note and mortgage before you sign. Your Plan B has to be priced now: at $214k balance, ask yourself whether you could refinance at today's rates with the rent you have, or sell into your local market fast enough to clear. If neither answer is yes, the risk isn't priced.

Equity price. You are paying $28k for a $265k asset with $214k of debt at 3.5%. That is roughly full equity, so you are buying the rate spread and nothing else. Whether the rate is worth $28k depends on how long you hold. If you hold ten years, the payment difference against a new loan at current rates on $214k is large. If your Plan B is a refinance in year two, you paid $28k for a rate you gave up.

Insurance. The existing policy is in her name and typically does not cover you as owner. Practitioners usually place a new policy naming the buyer's entity as insured with the lender as mortgagee. Confirm with the carrier in writing what they will issue given the title change, since carriers differ.

Quill's escrow point is the one that decides your $290.

I own a small four unit two towns over from a deal like this and the thing that taught me the most was the escrow shortage letter in month fourteen. Payment went up $130 and my tenant did not care.

On $290 of spread you have one month of vacancy per year of margin. That's it, Wren. I wouldn't take that deal for the rate alone, I'd take it if the $265k is soft and you think the house is actually worth $290k with the kitchen done.

Underwrite the Plan B first and everything else falls out of it.

$214k at whatever current rates are for a non-owner cash-out or rate-and-term, call it a payment somewhere well north of $1,610 plus taxes and insurance. If your rent is $1,950, that refinance is negative from day one. So if the lender ever calls the loan, your only exit is a sale.

Which means the real question is what nets on a sale. $265k minus selling costs minus $214k leaves you around $30k, and you already handed her $28k. You'd be selling to break even on a forced timeline. That is the whole deal in one line, and I don't hate it, I just want you to know that's the position.

Counter at $18k and see what happens.

Ask her why $28k. Sometimes it is a real number, a deposit and a truck and three months of rent, and sometimes it is the round figure her son-in-law suggested. I have bought two pieces of land where the seller's number came down by a third when I asked what it was for and then structured around the actual need.

Wren, the part I'd sit with is that her name stays on that loan for as long as you hold. That's fifteen or twenty years of her watching her credit report and hoping you're solvent. If she remarries, buys a condo, needs to qualify for anything, that debt shows.

I'm not saying don't. I'm saying that is a long relationship with a stranger and you should both know it's a long relationship before either of you signs.

Escrow shortage was a new term to me, and none of this made sense until I understood it. For anyone else behind me: the lender collects taxes and insurance monthly, guesses the amount, and if they guessed low they add the difference to your payment the next year. So the $1,610 is not a fixed number the way the 3.5% is fixed.

Check whether the property has any exemption on the tax bill that dies with her. Homestead treatment and how it moves on transfer varies a lot by state, and in some places the assessed value resets when the deed records. That's not a small item on a $290 spread, it can eat the whole thing.

Call the assessor's office and ask what happens to that parcel's assessment on a deed transfer. They will usually just tell you.

Whose name the insurance goes in was the first thing my broker warned me about when I was studying. A policy in a seller's name on a house she no longer owns can be denied on a claim for lack of insurable interest. Get that squared before closing, not after.

I'm still confused about one thing and I'd rather ask than nod along. If she wants $28k cash and you counter with terms, what's the terms part? A second note from you to her? Who records that, and does the first lender see it?

@vellum a seller-financed second is common on these, and yes it would normally be recorded as a lien behind the existing first. The first lender doesn't get a notice in the mail, though anything recorded is public record in most counties so it's discoverable.

Wren, if you go that route, understand you now have two payments, and the second one is to the person whose credit you're holding. That relationship gets tested in month one of a vacancy.

Three weeks is not a lot of time to get an attorney to read a note, get a carrier to commit in writing, and call the assessor. It is enough time if you start Monday. I'd tell her that plainly rather than let the deadline make the decision for you.

I'll push back on @sextant a bit. Break-even on a forced sale isn't the failure case, it's the floor. The base case is you hold a house at 3.5% for a decade while rents move and the payment doesn't. That's a real position.

The part I'd fix is the $28k. You're paying full equity and taking the due-on-sale exposure and the escrow risk and the relationship risk. Somebody has to be compensated for that and right now it's not you. $18k or $22k with a small note, and if she says no, she says no.

The version of this I'd want is the same house at $20k with $2,100 rent and a seller who understands exactly what stays in her name. What you have is close to that and not it. Nothing wrong with telling her the number that works for you and letting her decide.