First, what is Subject to financing?
Subject to financing is where the current financing of a homeowner can be taken over by the buyer who takes title over the property. The buyer will then pay the seller’s mortgage payment.
This post is just an overview, if you’re seeking the support of a lender, check out The FI Team’s preferred lender’s page.
What’s all the hype about Subject To? Here’s an overview about what it is, how it works and how it can benefit you in a deal.
Taking Over Existing Financing: In a Subject To deal, the buyer purchases the property and takes over the seller’s existing mortgage. The title of the property is transferred to the buyer, but the mortgage remains in the seller’s name.
No New Loan Required: Unlike traditional real estate transactions where the buyer obtains a new mortgage, in a Subject To deal, the buyer doesn’t need to qualify for a new loan. This can be advantageous for buyers who may not be eligible for conventional financing or want to avoid a down payment.
Lower Closing Costs: Since there’s no need for a new loan, the buyer can save on some closing costs typically associated with obtaining a mortgage.
Existing Interest Rate and Terms: The buyer benefits from the seller’s existing interest rate and mortgage terms, which might be more favorable than current market rates (hello getting a 2.5% IR when most are getting 7%!!) This can result in lower monthly payments and potentially significant interest savings over time.
Quick Acquisition: Subject To deals can be quicker to close compared to traditional transactions since there’s no need for loan underwriting and approval processes.
Investment Opportunity: For real estate investors, Subject To financing can be an attractive way to acquire properties without tying up significant capital. This allows investors to leverage their funds for other investments.
Preserving Equity: For sellers facing financial difficulties or needing to sell quickly, a Subject To deal can help them preserve their equity and avoid foreclosure or short sales.
Flexible Negotiation: Subject To deals offer more flexibility in negotiations between the buyer and seller. Both parties can tailor the agreement to suit their specific needs and circumstances.
Potential Profit: If the property appreciates over time, the buyer can benefit from the increased equity without having to refinance or sell the property.
Sounds pretty good huh? So what’s the catch?
For buyers, there’s a risk that the original seller may default on the mortgage, which could affect the property’s title. Sellers should carefully evaluate the buyer’s reliability and have a written agreement to protect their interests.
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