Subject to vs Owner Financing

12 Replies

I believe I have a pretty good understanding of both but I could use a scenario or two in which you would know which method to use to acquire the property. From what I understand, if the owner has the home completely paid off then you would try and get owner financing because if they still hold a mortgage then there will be a due on sale clause or something when they sell the home? But with a sub2 I would "assume" the mortgage and pay the mortgage on the sellers behalf? Also, if I'm "assuming" the mortgage with the same bank, would I need to be able to qualify for a mortgage for that bank or could I use another source of financing? 

I need to get these books off of my Amazon wish list and into my brain faster.

You'd use owner financing if the owner owns the property without a mortgage.

OR

Subject to (existing loan) if the owner didn't have much equity.

OR 

Both if they had a substantial loan and substantial equity.  

Rumor is 'due on sale clause' is rarely exercised, but it's a possibility.  There are ways to reduce the risk.

Rick

you are in GA so...

pretty house little equity ----- > buy on land contract-cfd, wrap, sub2, lease option and assign.

pretty house and alot of equity 

----- > sub2 and note-mortgage, land contract-cfd, wrap, lease option and assign.

ugly house and alot of equity  ----- > wholesale - straight option, buy w private funds and resell, buy with hard money and resell

@Brian Gibbons  @Jose Diaz  

Land contract as in simple purchase and sales? Also, not familiar with terms "cfd" or "wrap."

Hate to tell you, but you definitely don't have a clear understanding of them based on your question.

CFD = Contract for deed

Wrap = Wrap mortgage.  

If you need some help, I'm in Smyrna, feel free to reach out, but I wouldn't try to do anything that you're talking about with your current knowledge level.  Its not rocket science, but there is a lot to it and you can really cause some damage doing things without a solid understanding of what you're doing. 

I'll expand some:

You run across someone that has a paid off house, you can offer to buy it with owner financing.  They are the bank, they deed you the house, it is in your name, they hold a note and security deed to the house just like a bank would.  You pay them monthly payments for the house, if you fail to do so they will foreclose just like a bank would.

Contract for Deed (we dont use them much in GA)- think of a car loan.  The sellers keep title to the house, but you have a legal contract to get ownership when the loan is paid off.  I've never done one of these, but they are popular in some areas of the country.

Subject to:  You run across someone that owes $95k on a house that is worth $100k.  They can't sell it and pay a RE commission without writing a check for at least $1,000.  Instead of going that way, they deed you the house subject to the existing mortgage. You actually now own the house, but your ownership is still subject to the terms of the original loan and your seller is still on the hook for the note.  Plus the collateral still collateralizes the loan even though ownership has changed.  The bank can take the house if you fail to pay.   Its in your best interest to make the payments, but if you don't the only recourse the bank has against you is to take the collateral since you didn't sign the note.  

I used to do a lot of sub2's that were in foreclosure.  We'd reinstate the loan (pay the back payments) and give the seller whatever they got, then leave the loan in place, fix up the house and sell it.  Many times on a Lease/Purchase to get more out of it.  Haven't done one in a while, people around here don't have much equity and I've been doing the "ugly house" business.  Brian mentions many other ways to make deals work doing the "pretty house" side of things.  We've done a lot of the same training from reading his posts.

Lots of ways to put deals together...when you are getting started its kinda like drinking water out of a firehose.

Land contract and contract for deed are the same thing, they just call them different things in different parts of the country...

Originally posted by @Darrell Shepherd:

I'll expand some:

You run across someone that has a paid off house, you can offer to buy it with owner financing.  They are the bank, they deed you the house, it is in your name, they hold a note and security deed to the house just like a bank would.  You pay them monthly payments for the house, if you fail to do so they will foreclose just like a bank would.

Contract for Deed (we dont use them much in GA)- think of a car loan.  The sellers keep title to the house, but you have a legal contract to get ownership when the loan is paid off.  I've never done one of these, but they are popular in some areas of the country.

Subject to:  You run across someone that owes $95k on a house that is worth $100k.  They can't sell it and pay a RE commission without writing a check for at least $1,000.  Instead of going that way, they deed you the house subject to the existing mortgage. You actually now own the house, but your ownership is still subject to the terms of the original loan and your seller is still on the hook for the note.  Plus the collateral still collateralizes the loan even though ownership has changed.  The bank can take the house if you fail to pay.   Its in your best interest to make the payments, but if you don't the only recourse the bank has against you is to take the collateral since you didn't sign the note.  

I used to do a lot of sub2's that were in foreclosure.  We'd reinstate the loan (pay the back payments) and give the seller whatever they got, then leave the loan in place, fix up the house and sell it.  Many times on a Lease/Purchase to get more out of it.  Haven't done one in a while, people around here don't have much equity and I've been doing the "ugly house" business.  Brian mentions many other ways to make deals work doing the "pretty house" side of things.  We've done a lot of the same training from reading his posts.

Lots of ways to put deals together...when you are getting started its kinda like drinking water out of a firehose.

 Thanks for educating.

I would like to applaud @Darrell Shepherd   Shepherd 

There is NO WAY he does not know what he is talking about.

Keep up the great work Darrell!

Originally posted by @Darrell Shepherd :

...We'd reinstate the loan (pay the back payments) and give the seller whatever they got, then leave the loan in place, ...

What did you mean by that? I thought in these situations the sellers wouldn't be bargaining, successfully at least, for much more than getting out of a bad situation. I'm not too familiar with how foreclosure deals work out so I'll appreciate your response. 

I'm currently on the business end of a firehose. I'm so thankful for this site. You guy's rock! 

How do you come up with the terms for owner financing/subject to, ugly and pretty?

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