Subject To An Existing Mortgage

One of our Synrgy Home Selling Programs is a Subject To. A Subject To is a creative financing technique that allows a seller to sell a property without having to make any repairs, make up any missed back payments, or pay any commissions or closing costs by simply allowing the buyer, the ability to take over the property, Subject To any existing loan staying in place.

In other words, a seller can sell and a buyer can buy without any new bank financing needed since there’s already a loan or loans on the property. Subject To transactions are becoming increasingly popular in today’s economy as getting traditional financing from banks becomes more challenging.

How It Works

When a homeowner wants to sell his or her house but has trouble because they are behind on payments, or have little to no leftover equity, causing them to have to come out-of-pocket to cover commissions and closing costs and repairs. The seller can get creative and overcome these challenges by allowing the buyer to take title of the property, Subject To their existing mortgage or mortgages on the house, staying in place. It works just like a traditional sale with some small nuances.

1. The buyer and the seller sign a purchase and sale agreement with all the terms and conditions of the sale, in the same way, you would with any other real estate transaction. The purchase and sale agreement states that the buyer will be taking the title, Subject To the existing loan’s staying in place.
2. The buyer and seller will sign all the necessary disclosure documents, explaining the entire transaction so everyone is aware of the benefits and risks associated with this type of transaction.
3. At closing, the buyer will cover all closing costs, any necessary back payments needed to bring the loan current, and any other fees associated with closing on the property. Also, the buyer will get all necessary insurances, including title and property insurance, to cover all potential future issues.
4. Once the title has transferred and the closing is complete, the seller will move out of the property and the new buyer will be responsible for paying all future mortgage payments.

Subject To Benefits

Now, there are four amazing reasons why a seller would consider allowing someone to take the title, Subject To:

1. It allows you to sell quickly. Since no banks are involved, the buyer qualification process is simple and fast. No long, drawn-out lending process. And plus, sometimes in a traditional sale, if your property needs extensive repairs like a new roof or AC unit, or the property has termite damage, banks won’t lend until major issues are repaired. With a sub to transaction, you won’t have to make any costly or time-consuming repairs.
2. You don’t have to manage a rental. A lot of times, if a seller can’t sell because there is little to no equity in the property, they default into turning the house into a rental. This can be costly and a pain in the butt. Selling via a Subject To is a great alternative to dealing with tenants and toilets.
3. You get the price you want. Typically, the reason you would allow someone to take title Subject To the mortgage is that you were getting the price you want for the property, instead of selling it at a big discount and possibly having to come out of pocket. In exchange, you work with your buyer on giving them good terms, and everyone comes out a winner.
4. It’s a simple, fast way to sell a property. Real estate investors are easy to deal with, as opposed to owner-occupants. All the paperwork will be handled by the investor or the closing agent. No commissions or closing costs are typically associated with this type of sale. And since there are no banks involved, the approval process is as easy as a few conversations between you and the buyer.

Potential Downside

On the flip side, there are two major downsides to allowing a buyer to take title Subject To:

1. The first one is if the buyer stops making the mortgage payments. Since the loan is technically still in your name, this will negatively affect your credit score, especially if the issue is not caught quickly and remedied. The good news is that we have certain processes we put in place to ensure this type of thing doesn’t happen, such as using a third-party servicing agent, where all payments are made and receipts are given. This ensures that no miss payments occur without your immediate notification. Plus, since we have never been foreclosed on, or missed any payments on any of our obligations, you can rest assured that our track record speaks for itself.
2. And the second downside is, in the event, you are selling this house to move to another house and plan to get a new mortgage, you need to check with our new mortgage underwriters as to whether or not you qualify for having two mortgages at the same time. Otherwise, you may want to rent for a little while.

Other than that, by getting creative and participating in helping the buyer get financing, this type of transaction can quickly become a huge win-win for everybody involved.

Subject To in Action

Here is a quick example of a Subject To transaction. Let’s say Sarah wants to sell her property that was built in the 1980s, which she has owned for five years. The property is worth $100,000, but she still owes $90,000 on the mortgage, and she is stressed and having trouble making the payments and is now two payments behind.

She knows that selling and downsizing is the right thing to do so she can get back on her feet. But all the offers she has received so far are way too low. And she’s getting frustrated because most investors are trying to buy her house for $50,000 or less because it needs some repairs.

That’s when clever investor Bob comes and asks Sarah if she would be interested in getting creative, and allowing him to take title Subject To the mortgage. Sarah says she’s interested, and Bob asks Sarah to see her mortgage statement.

Sarah digs one up, and Bob sees that Sarah has a monthly payment of $875, which covers principal, interest taxes, and insurance. Bob sees that rents in the area are $1,250 a month. And Bob thinks Sarah’s house would make a great rental property once it’s fixed up a bit.

So Bob makes Sarah a creative offer to buy Sarah’s property for $90,000, which is the remaining balance of what she owes. Give Sierra $2,000 in move-out money, pay back the two missed payments, and make the loan current.

And need to take over her property Subject To the existing mortgage, staying in place with no repairs needed, and Bob covering all closing costs. Bob Ben show Sarah all the disclosures and paperwork. And once Sarah felt comfortable with Bob, she agrees to the deal. This is a win-win for both Sarah and Bob. And it only happened because Bob and Sarah took the time to look at a creative way to sell a property.

If you would like to explore this option or any other selling options with us here at Synrgy Home Offer, whether that be a straight cash offer or even listing your home the traditional way, feel free to give us a call or text. We’re happy to answer any questions!

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Other Creative Home Selling Programs

• Seller Carryback
• Wrap Around Mortgage