If you are considering selling your home to an investor, you may have heard the term “subject to” used in relation to existing financing. But what does this phrase mean, and how does it affect the sale of your home?
In real estate, “subject to” means that the sale of a property is contingent upon the existing financing remaining in place. This means that the buyer is willing to purchase the property and take over the existing mortgage, rather than requiring the seller to pay off the mortgage in full before closing.
There are several potential benefits to selling a property “subject to” existing financing. For one, it can make the sale process faster and more streamlined, as the seller does not have to go through the process of paying off the mortgage before closing. This can be particularly useful for sellers who need to sell their home quickly, or who are facing financial challenges that make it difficult to pay off the mortgage in full.
In today’s rate environment, where mortgage rates have gone from around 3% at the beginning of 2022 to nearly 7% today, homeowners who need to sell quickly but lack the time, resources, or expertise to complete the necessary work to prepare a property for sale have a distinct advantage if they have a mortgage on the property with an interest rate below the current market: They can offer to sell their property to an investor with the exiting mortgage intact, which enables the investor to pay more, often even more than asking, for the property.
Additionally, selling a property “subject to” existing financing can also be a good option for sellers who are unable to qualify for a new mortgage on their own. This may be the case if the seller has poor credit, insufficient income, or other financial issues that make it difficult to secure a new loan.
Of course, there are also some potential drawbacks to selling a property “subject to” the existing financing. One of the main risks is that the buyer may default on the mortgage, resulting in the property going into foreclosure. This can be a costly and stressful situation for the seller, who may be liable for any deficiency between the sale price and the amount owed on the mortgage.
To mitigate this risk, it is important for sellers to carefully vet any potential buyers and ensure that they are financially stable and able to make the mortgage payments on a consistent basis. It may also be a good idea to seek legal advice before entering into an agreement to sell a property subject to existing financing, to ensure that your rights and interests are protected.
Overall, selling a property “subject to” existing financing can be a good option for some sellers, particularly those who need to sell their home quickly or who are unable to qualify for a new mortgage on their own. However, it is important to carefully consider the risks and potential drawbacks of this approach and to work with a reputable and trustworthy investor who is able to provide the necessary financial stability and support.