Selling your Colorado home can be difficult, especially if you owe as much, or more than it is worth. One option that many have become aware of (but few understand) is Subject-To. You may have actually heard investors talk about “taking over payments” or seen those “We Buy Houses” signs on street corners.
For example, if you owe $400,000 for your property and it’s only worth $425,000. You may see $25K of equity there, but after all the fees of selling your home and making any repairs requested by the buyer, you’ll likely have to come to the closing table with cash. An investor may be willing to give you what you owe if you keep the loan in place.
Why Investors Buy Denver Houses “Subject To”
When taking over your mortgage payments, a real estate investment company cares less about the purchase price and more about the monthly cost and what kind of repairs it needs. An investor will generally buy your home subject-to the existing mortgage if the payment is (at minimum) $500 less than what they can rent it for.
This gives them some room to generate a profit because they’re going to rent the house out until it appraises for more or until the loan balance is considerably less. In some cases, investors will refinance after several years and pay off the original mortgage. And in other cases, investors will make your payments for the entire life of the loan.
Should You Consider Selling Your Home “Subject To”
The important thing is that you understand everything. What gets individuals into problems with these types of deals is the miscommunication. A good investor will explain each detail of the transaction.
If you are late on mortgage payments or owe more than the house is worth, then selling it on the open market or to a cash buyer is not really an option without doing a short sale. So what’s a homeowner to do if they can no longer make payments and cannot sell the property to pay off the mortgage?
That’s where selling your house subject to can help. You’re basically off-loading your monthly payments to someone else, so you can stay afloat. For homeowners trying to avoid foreclosure, this is a great option.
Get Upgraded From Landlord To Lender
You might be a tired landlord and have a rental you’d like to sell. If you sell to another investor subject to, you’d still earn cash flow every month like clockwork, but you wouldn’t have to deal with the tenants, toilets, tax and insurance, and everything else that comes along with a rental property. Doesn’t that sound good? Now your making money like the banks do.
What Homeowners Need To Know About A Subject To Transaction
The Mortgage Stays In Your Name
You still own the mortgage. You do not own your house any longer, however, you are still responsible for the mortgage. That is scary for some individuals. It is also risky because the new owner (the investor) has no home loan liability — no “skin in the game” besides the initial investment (catching up on back payments, repairs, etc.) and the monthly payments.
Always ask for a “Performance Deed” which is a deed in lieu of foreclosure in the event the investor stops making the payment on the mortgage. So, basically, you get a brand new house back. Now you can move back in or sell on the open market. The mortgage has been paid down and you’ll likely be in a better equity position so you can potentially sell fast by offering it slightly below market value if needed.
It Can Affect Your Ability To Get Another Mortgage
The home loan might stay in your name for the entire life of the loan. This could make it tough to obtain another mortgage in the future due to the fact that it is going to skew your debt-to-income ratio. The investor may refinance after several years or sell it to another homeowner, at which point the original mortgage would get paid off.
One benefit of the mortgage being in your name is it will help you build your credit. If you want to get another mortgage, ask the investor for a DTI Declaration. This is the paperwork showing they are now responsible for the mortgage. Your new lender will 75% of credit their payment in the first year and 100% of the payment after one year. This will most likely allow you to buy another house.
Trust Is Key
Don’t consider doing a transaction such as this without trusting the investor. Never just sign the papers. Make sure you understand what it is you’re signing.
A Subject to transaction isn’t for everyone. But if you don’t have much equity in your home and you need to get out of it, selling your home subject to existing financing might make sense. It can save you from hurting your credit for years by going through a short sale or foreclosure.
We’re Looking To Add To Our Portfolio
Real Home Solutions can buy your house much faster and offer considerably more by taking over payments and purchasing your property “Subject To”. We can start making the payments on your home and obtain your terms for any equity you may have. If you are in pre-foreclosure we may even be able to catch up on all your back payments and debt.
If we can add a rental to our portfolio and not use a bank and have a lot of expensive closing costs, then acquiring it Subject-to makes sense. If you don’t have a ton of equity and would like to sell fast, these transactions can happen very quickly. This is a home selling transaction that can close in a few weeks or less!
If you want to learn more please give us a call at (720) 336-3123 and we will be totally transparent on the paperwork and how it’s done. You will be completely protected in this transaction and it may be a great alternative for you!