So you may have heard the term Subject To The Existing Mortgage, but what is it, exactly? When selling a property we have many legal and creative ways to get it sold and find a win-win solutions. One of these options is selling a property is selling subject to the existing mortgage, or “sub to”. Are you upside down on your mortgage? Are you saying “I can’t afford to sell my house”? Well, subject to… might be right for you.
There are many reasons for both buyer and seller to agree to the subject to the existing mortgage or sub 2 option. If done correctly, it is a great way to buy and sell a property in Texas. If done incorrectly it can put both buyer and seller at risk.
What Is Subject To The Existing Mortgage When Selling Real Estate?
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.
Benefits For Buyers When Selling Property Subject To The Existing Mortgage
Buying a house is costly and requires the buyer to come up with cash for the sales price or a percentage of the sales price. Plus the buyer is subject to current interest rates from a traditional lender of a private money lender.
Other Benefits When Buying A Property Subject To The Existing Mortgage:
- Frees up cash so the buyer has money to repair the house
- Interest rate and monthly payment is low because the buyer is not having to loan a money from a private lender or hard money that charges high interest rates.
- Financing is already in place enabling the buyer to close fast and does not require an appraisal or for the loan to be approved.
Benefits for Sellers When Selling Property Subject To The Existing Mortgage
- Sell a house with No Hidden Charges, NO Fees, NO Commissions, NO Closing Cost on the date of their choice.
- Seller may earn little bit more money when selling their property because the buyer might be willing to pay a little more for the house.
- Upon closing the property, the seller usually walks away with CASH if there is equity. This cash that the seller will get is the difference of the agreed upon sales price and the balance of the mortgage.
Horrible scenarios can happen to good people. Like loss of work, death of a loved one or an unexpected health issue. There are many things in life that can cause financial pressure and make home ownership become a problem. When home ownership becomes a burden often times the up-keep on a home is not done. So now there is the stress of paying the mortgage off on top of fixing things when needing repair. This is all part of home ownership. You can stop the of frustration of your unwanted house by selling it through subject to the existing mortgage.
The Pitfalls of Subject To The Existing Mortgage
Title Insurance and Mortgage Servicing
Getting title work done and title insurance is important when buying a house Subject To The Existing Mortgage. If you are the seller consult with the escrow offer so you can protect yourself against the buyer not making payments on time. Make sure you also set the mortgage payment up to be serviced through the escrow company, or RMLO. As the seller, you know the mortgage is being paid on time.
As the seller, ask the escrow officer about doing a “mirror wrap” so if the seller does not make the payments you can get your property back. A “mirror wrap” accomplishes the same thing but has better protection for the seller.
The Due on Sale Clause
The due-on-sale clause can potentially be one of the biggest pitfalls. This is a clause in the original loan documents of the seller. In essence, it says that if title is transferred or changes hands, the bank has the right to call the loan due and in full. Keep in mind, I said “right to call the loan,” but the real question is how often do they call a performing note?
PREAM HOME BUYERS has help many of homeowners in Texas who are in need of selling their home through Subject To The Existing Mortgage. . We have never had a bank call the loan due in full. We have always made the mortgage payment on-time. We service the mortgage through a reputable RLMO company making sure everything is done above board.
Home Owners Insurance
Making sure the home is insured is a priority. Most mortgage payments have confiscated accounts which includes paying the property taxes and home owners insurance when making the mortgage payment.
It is best for the seller not to cancel the home owners insurance since it is being paid through the mortgage.
If the home owners insurance is canceled, this can cause the bank to investigate the triggering of the due-on-sale clause and it will send a note to be paid in-full. It is best to keep the current insurance policy in place.
It is easier to have all parties named as insured or additional insured on the one policy, including previous and current owners.
Types Of Mortgages You Can and Cannot Sell Subject To Existing Mortgage
When selling a property Subject To The Existing Mortgage the mortgage needs to be a conventional loan. If you have an FHA or VA loan you can’t sell your property subject to the existing mortgage. The government loans are very strict about when can be done with an FHA or VA loan and the title companies wont insure the property at the sale if you have an FHA or VA loan.
Another thing to be aware of… If you have a Home Equity Line of Credit (HELOC) it will need to be paid off through escrow when selling Subject To The Existing Mortgage. As the buyer, you want the HELOC paid off at closing because with an open line of credit the seller could pull money from the line causing you to have to come in with more money when you paid off the mortgages or line of credit when you go to sell the property or when you agreed to paid of the mortgages. Title companies will usually require HELOC’s to be paid off and close when buying subject to the existing mortgage.
In Short…
There are pros and cons to selling a house, multi family property, or mobile home through Subject To The Existing Mortgage. Make sure you fully understand what you are doing if you are the seller and have the escrow/title company working in your best interests to protect you.
PREAM HOME BUYERS can help If you have a house, or mobile home in [market-city], or other areas in Texas, Give us a call and we will discuss all of your options. Call us and be Done! (469) 840-4449
