Potential subject to deal.
Hey so I'm new to real estate investing and because I am self employed and my wife is a teacher and we recently got a loan on a car for her we won't qualify for traditional financing. That's what the lender we talked to told us. We live in Utah where house prices are fairly expensive.
My uncle is moving out of state and looking to sell his current house.
From what I understand about subject to financing we would sign a contract stating that i will take over his existing mortgage the mortgage would stay in his name and my name would go on the title.
my questions are the following:
1. Is that correct or did I miss anything
2. What happens to the existing equity that he has in the property and would I be able to access it with a HELOC or home equity loan.
3. Does any one know a lawyer in Utah that has experience with this type of financing that could help draft a contract.
4. I know this could trigger the due on sale clause and has anyone seen that happening more since interest rates are rising and the banks could potentially get a new loan at a higher interest rate.
Due on sale clause is very unlikely as long as you are current on the payments. I have a lawyer I am happy to recommend for the contract.
With the appreciation we saw here, it is unlikely that your uncles house is worth less than the mortgage that is on it. In most cases, the seller retains the equity in some way.
For example:
Your uncle’s outstanding mortgage balance is 50k, but the house is worth 100k on the open market.
Your uncle would net: 100k - 6k (realtor commissions)- 50k (mortgage payoff) = 44k
Couple of options from here, you would need a down payment of 44k, get a new loan for the remaining 44k to pay your uncle, you can do subject to and have a balloon payment set for 2-5 years when you can qualify, or you uncle wants to be generous/doesn’t want to hassle with selling on the open market and you walk into 44k of equity.
Hopefully this makes sense. Happy to walk you through the process or answer anymore questions.
I just closed on my first Sub to deal. A friend decided to move but didn't want the hassle of selling on the market. We negotiated a fair price for both of us. We used funds from a HELOC on my current home to pay them some cash at closing to get them moved. We took over payments on their mortgage. I used Dean Smith, https://utahrealestateattorney... to write up the contract and make sure everything was legal. He advised us to put a second insurance policy on the property in my name and leave the mortgage owners policy in place as the change in insurance and policy holder is a red flag for the mortgage company. I used a title company, InWest Title-Tooele, walked through the process with them to change ownership of the property.
I am selling my current house and clearing the sub to mortgage with the proceeds. The new house is bigger and worth more so I am walking into equity and more square footage for the price of my current home.
I looked at lots of financing back ups uncase the bank calls the loan. I considered Cash out refi on my existing house as I don't have a mortgage on it(paid off 3 years ago), but interest rates are in the 7's for that, yikes. I thought about refinancing the new house but I talked to two mortgage loan officers, neither had experience with this and neither could give me a clear answer about refinancing the house. Their concern was getting thru underwriting with the house being in one name and the mortgage in another. So my out is to sell my current house.
You may look into seller financing on the house if your uncle wants money from the deal. Your uncle would become the "bank" and you make payments to him on top of the existing mortgage payments.
You will have to talk to a bank to see if they will offer a HELOC on the property, since you would have title you should be able to. HELOC's typically have adjustable rates, and they follow the mortgage rates. Just keep that in mind, and don't spend your HELOC money on depreciating assets, like vehicles, toys, vacations...
Quote from @William Makin:
It's unlikely this would trigger a due on sale clause. I don't know anyone that has had a loan called and the bank probably would never know as long as payments are made.
You can't access the equity because the loan is in your uncle's name. He would have to access it, but why would he take out equity and then give it to you?
This sounds like a potential deal and you should definitely investigate further.
If you really want to be successful in real estate, you'll need to work hard and sacrifice. Car loans are making your life worse, not better. Listen to Dave Ramsey and get your personal finances straight, then you can focus on saving up and investing.
There are two ways to approach your uncle's equity:
1) cash him out of his equity and take over the existing loan
2) "wrap" the existing loan into a new one
Using Logan's numbers, let's say he has an existing loan with a balance of $50K and the property is worth $100K. Cashing him out just means paying him $50K in cash and taking over the payments on the underlying loan. In the second example, he would be the lender on a new loan of $100K to you and continue paying on the $50K while pocketing the difference over time.
The most common way to "wrap" a mortgage in Utah is with an All Inclusive Trust Deed & Note. Most title companies will have the paperwork for this and provide it as part of the closing.
There's a ton of info on BP on seller financing. But you may have to go back a few years... Or find a reputable title company and have them explain it to you and your uncle. Then you can get with him and fill in the blanks.
Good luck.
@William Hochstedler Many great responses here, and looks like you have the opportunity to get a place. However Like @Nathan Gesner said get your finance straight. Is your uncles house going to be your primary that doesn't generate income? If so you are buying a house but what is the investment plan?
However if the Uncle doesn't need a lump sum right now, you can take the property over subject to with an owner carry for the remaining portion of equity and no new lenders are involved (albeit your uncle) and long term escrow can likely be handled by the same company doing title and escrow.
Just be smart if you are looking to get going in investing don't over commit your self to payments where you are starting form a high DTI right away and only a primary to show for it.
Best of luck and make it happen!
Love this, I know of a high end house for sale with a mother in law apartment in Eden UT if anyone else is looking for a creative deal!