Answers to Common Subject-To Questions
If you need to sell your house and you don’t have much equity, selling subject-to may be your best option. Subject-to, in real estate speak, is short for subject-to existing financing. With this option, the home ownership changes, but the loan stays in the name of the seller and the buyer will be responsible for the mortgage payments after the sale. Because this is not a common method for buying or selling a house, you probably have a lot of questions, or maybe you’re not even sure what to ask. It’s important to feel comfortable with the transaction, so we have put together a list of answers to common questions about selling subject-to. How long will the loan stay in my name? This typically depends on the exit strategy the investor has in mind. If the investor plans to fix and flip the house, it could be as little as a few months. However, it’s more common for investors to rent out the house or use another exit strategy and keep the loan in place for three to five years. Even if the investor intends to flip the house, shifting markets could cause him or her to change strategies, so it's best to expect the loan to be in your name for up to five years. Will I be able to get another home loan or other financing? Your credit will be the biggest factor here. If you have good credit, you should be able to get another home loan. Upon the subject-to sale of your house, you will be issued a promissory note so lenders can see that your first mortgage is being paid for by a third party. If your credit is not good enough to qualify for another home loan, talk to the investor you are working with. Many investors can tap into their network to either help find you a lender or another home. What are the risks to me? The biggest risk to you is the possibility of the buyer ceasing to make loan payments. If you are working with a reputable, experienced real estate investor, this is extraordinarily unlikely. The investor knows they risk losing the asset if they stop making payments. In the rare circumstance that does happen, you have the right to foreclose on the investor and take the house back. What are the benefits to me? Subject-to is a common strategy in selling a house that is at risk of foreclosure. If this is the situation, this method will actually help your credit. First, you won’t have a foreclosure on your record, and second, the investor who buys your house will build your credit with every payment they make on your house. If you have little to no equity, the benefit to selling your house this way is that you don’t have to bring any money to the table to pay for repairs, realtor fees or closing costs. Finally, with this strategy you are selling your house as is and without a realtor, so you don't need to worry about making any repairs, or about paying any realtor commissions. You can essentially walk away from the house and the mortgage and not have to deal with the stress of your situation anymore. Do you have any other questions about this strategy? If so, you can call or email us and we’ll be happy to answer them.