When you sell your house “subject to”, it means the buyer will take ownership of the property with the existing mortgage still in place.
What Sell House Subject to Means
Selling subject to means selling a house subject to the existing mortgage. The mortgage is not paid off and remains in the previous owner’s name. It may continue to show up on the seller’s credit report. The new owner will agree and make payments to the lender on the sellers behalf.
Reasons To Sell A House Subject-to
A big advantage of a subject to transaction is that it is relatively low cost. There are no loan origination fees or broker commissions involved. This is important for real estate investors who are working with homeowners who have little to no equity in the house. Sometimes the only way to make a deal happen is if they buy the property with existing financing.
Another advantage is that it allows you to sell your house fast. It is best to close with a real estate attorney but even then the process can take days rather than weeks or even months. This can help your credit from being hurt if you’re not able to make your monthly mortgage payment.
Subject-to or Loan Assumption
You may be wondering what is the difference between subject to and a loan assumption. They are similar but definitely not the same.
With a loan assumption, the buyer will submit paperwork to request permission from the lender to assume the loan. The bank will qualify the buyer and move personal liability for the loan from the seller to the buyer’s name. There is cost associated with the process but it is cheaper than getting a new loan. This may be available for VA or FHA loans but not conventional loans.
With a subject to transaction, the lender is not notified of the sale. The buyer will start making the monthly mortgage payment directly to the lender. The buyer is not assuming the obligation to pay the loan so the seller is still ultimately responsible. This is one reason it is important to work with a reputable company that buys houses who values ethics and doing the right thing, whether or not they are legally obligated.
“Due on Sale” Clause
The existing mortgage may or may not contain a due on sale clause. This clause basically prohibits the transfer of the property without paying off the loan or obtaining the lenders approval.
It’s usually not a good idea to ask a lender if it is okay because the answer is almost certainly going to be no. If a transfer has already occurred and the lender has a due on sale clause, they may be able to demand that the loan is paid in full.
So will the lender call the loan due if they find out you sold the house? Usually no. It is possible but it is rare. Banks want to collect monthly payments. They are not in the business of owning houses and prefer to avoid foreclosure.
The goal of a good real estate investor would be to get your loan paid off as soon the market will allow. Worst case scenario, a credible home buyer will make an attempt to pay off the loan prior to the house going to foreclosure.
Should You Sell Your House Subject To
A subject-to transaction can be a good option when you need to sell your house fast but has risks for both buyers and sellers. It usually works best when there is no equity and the house is worth close to what is owed on it.
At Fairview Home Buyers, we buy and sell houses on the Southshore and Northshore of New Orleans. We buy houses for cash if we can fix them up and sell them for a short term profit.
We also buy nicer houses in good condition that may just need a little cosmetic work. We can usually pay full market value by buying subject to the debt that’s already on it. We take over all the payments and maintenance on the house, including taxes and insurance.
Contact us today to get a fair offer and find out how we buy houses fast in all types of situations.