Why Sellers and Buyers Benefit From Subject To
Selling your House
Many sellers are currently in a position where they have been trying to sell a home, but aren’t having the success they believed or were told they would have in today’s real estate market? There are lots of legal creative ways both buyer and seller can agree on to accomplish a win-win situation to get a property sold. When educated on creative options they might want to consider the option of selling their house subject-to the existing mortgage.
There are many reasons both buyer and seller would agree to a subject-to the existing mortgage transaction. By doing so, a home is sold off their hands more quickly in a more affordable manner and we are able to give them top dollar and in some cases even more than the asking price. Not sure what a “subject-to” home sale entails? Read on to learn more.
Mortgage? What is a mortgage? It literally means “death pledge.” I’m sure that most would agree; this is an incredibly disturbing thought. However, being a mortgagor/debtor under a mortgage doesn’t have to be this grim!
There is hope! Unlike a captain on a sinking ship, you do not have to sink with the vessel that is your mortgage, there is a life boat available for you to jump in, and it’s called “Selling Your Property Subject to the Existing Mortgage.”
What is a “Subject-To”?
Essentially, a “subject-to” contract is a purchase contract that includes a clause stating that the home sale is dependent on the buyer or seller meeting a certain stipulation. Selling a house subject to the existing mortgage means the existing mortgage is NOT being paid off. The existing mortgage stays in place and the buyer takes over the payments and the deed is transferred to the buyer.
The most common stipulation found in a “subject-to” contract is that of the buyer completing a home inspection. However, with home sales becoming more difficult and finding the need to sell their house for far less, buyers are harder to find and those that make offers are not able to complete the purchase because they face difficult lending criteria.
This is where subject-to an existing mortgage comes in, what this means is that we the buyer of the home takes over the title to the property, but the seller retains the mortgage itself. We make the existing mortgage payments directly to the lender, no legal transfer of the mortgage from the original owner’s name into the new owner’s name.
Seller Benefits
You might wonder, “why would they want to trust somebody else to make my mortgage payments?” First of all, if they are thinking about selling a home subject-to the existing mortgage, they will definitely want to make sure to do so with an investor and not a person who wants to live in the property. An investor will make the payments because profits are on the final sale of the property.
When you sell a home subject-to the existing mortgage to us, you can enjoy a number of benefits
- Creative way to get a hard to sell house SOLD FAST!
- Fast Close
- There is no need for an appraisal
- No Fees
- No Repairs
- No commissions
- There are no closing costs, since there is no transfer of mortgage holder. As a result, home sellers can save thousands of dollars.
- Closing subject-to existing financing is quicker. Which is great for those who may have otherwise had a hard time selling their homes.
- Receive asking price and in most cases more than asking price.
Need an example? There are plenty! Let’s say they are and have been trying to sell a home quickly, but you know it needs some work. As a result, they are having a hard time finding buyers. They have had some offers and accepted a couple but for different reasons they were unable to complete the purchase. Because they believed the house was sold they have already started the process of moving, so now they want to get the burden of the existing home and the new home behind them as quickly as possible. This is where a subject-to sale can be a huge benefit.
Buyer Benefits
We investors help sellers throughout the country and sell to tenants/buyers helping them become homeowners. Buying a house is expensive and requires a buyer to come up with cash for the sales price or a percentage of the sales price. Banks make it hard for us to acquire multiple properties. Plus the buyer is subject to current interest rates from a traditional lender of a private money lender.
Subject to purchase allows us to help more sellers and give the seller more for their property. It allows the buyer to close fast and does not require an appraisal or loan approval by an underwriter.
What Are the Steps?
If sellers are interested in selling property to us subject-to its existing mortgage, we are the real estate investors who have a lot of experience in creative financing. Their mortgage payments will be paid directly to
the lender each month in a timely manner, ensuring that our investment is secure and safe while protecting the seller’s future profits and paying down the principal putting more into the seller’s pocket.
Knowing that we are helping the seller’s credit score and they won’t have to suffer as a result unable to make those payments. In fact, their credit score will probably improve!
Steps Once Seller Accepts Offer
Seller can set the mortgage payment up to be serviced through the escrow company so the seller knows the mortgage is being paid on time. If they have a Home Equity Line of Credit (HELOC) it will need to be paid off through escrow when selling Subject To The Existing Mortgage. All that’s left to do is to sign the contract and we the investors will walk them through the rest.
We will receive title to the property, Sellers name will remain on the existing mortgage until we resell the house, refinance the existing mortgage, or pay off the property’s remaining principal mortgage balance. Most commonly done within 5 years.
From there, they can enjoy the peace of mind of having the mortgage payments made without the need for a lengthy closing process and that they achieved a sale at or near the asking price. Sellers need to feel they didn’t lose. So why not give them a win that we also win!
Why us?
We investors are the experts in the Real Estate Community and seek to protect and enhance our reputation by keeping sellers informed throughout the entire process. In terms of a “subject to” transaction specifically, it is in our best interest as a growing real estate investor to make all mortgage payments and to do so in a timely fashion for multiple reasons:
One of the first things we will likely do upon acquiring title to the property is make repairs and upgrades to the property. If we stopped making the payments, we would lose all funds that we expended in renovating and remodeling the property along with any equity that we added to the property.
Second, it is also in our best interest to fix up the property and either resell, or refinance as soon as possible. The quicker we do either of these things the more income we will generate from the property, because the longer we hold on to the property, the more we will have to pay holding costs. When either of these events occurs, The mortgage balance will be paid in full.
Third, as mentioned above, we are looking to enhance our solid reputation and build credibility in the Real Estate Community. A company can only accomplish these goals by keeping its word and by genuinely seeking to help its clients.
We will set up automatic payments utilizing a servicing company to pay the entire monthly mortgage, property tax, insurance and any other required payments from our company’s bank account directly to the mortgage account every month on time. We encourage our Sellers to set up an Escrow account that we fund so that it makes the payments to their mortgage company on time every month.
We have streamlined this entire “subject to” home selling process by creating a packet of all of the documentation required to complete these types of transactions, including all documents the seller would need to send their mortgage company, in an effort to make this home selling method as simple and straightforward as possible for our clients.
This real estate transaction will be reduced to writing in a simple, easy to read contract, so that both parties are legally bound to whatever agreement we have reached. Additionally, this entire transaction will be conducted by licensed attorneys to ensure the utmost legality and ethicality.
In an effort to create further transparency with our clients, we also share inspection reports and repair estimates with sellers, so that they can understand how we arrive at our purchase offer, and to give the sellers the advantage of acquiring reports and estimates that would normally cost them hundreds of dollars to get.
This way, even if they decide that they don’t want to accept our offer and work with us, at the very least gain valuable knowledge and information on the condition of the property and the necessary repair costs.
We as investors have the experience of making the offer, completing the paperwork and overall dealing with people. Please don’t hesitate to contact us if you have any questions or concerns.