Property Manager · Salt Lake City, UT · Member since 2011 · 41 posts · 5 votes
Can a seller that agrees with me to sell "subject to" get a new mortgage right away to buy a new house. If I provide a letter stating that I was covering the mortgage, would the seller be able to turn around and buy another home?
My seller has 2 condos. One is under water and the other is above water. The 2 condos in combination have positive equity before selling costs. He is very motivated to get rid of those and buy a bigger home for his family. I was considering offering a "subject to" deal for both and then turning around and selling them via lease option. My biggest question is, Can the seller buy a new home with the sub-2 in place?
Real Estate Investor · atlanta, GA · Member since 2013 · 456 posts · 237 votes
12y
Unlikely....has he stayed current on both mortgages with no lates and does he have the income to cover both mortgages plus the new one? That's where the rubber meets the road...bank really doesn't care about the subject to just that the mortgage is getting paid.
Both Brians give you good advice - be very leery of condos as HOAs can either change or enforce rental rules and limitations at the stroke of a pen...you can fight them legally but most times, once you start to fight with lawyers...you've already lost the battle. I've done a ton of condos and townhouses but never any subject to's....I prefer cash and clean but subject to's are a great way to take over & cashflow a property on someone else's credit. When I do these, I convert them to shared housing and cashflow like crazy. I did a 2/2 TH I bought for $15k spent $15k fixing it up, cut the living room in half to create a 3rd bedroom and sold it for $55k - my cash partner made 48% in about 5 months on the deal....pretty sweet. If you can do a similar thing, you can cashflow it and flip to a cash buyer. Just be sure to get a quitclaim deed signed by your seller and park it with your attorney to be held by him or her until the time you cash out the unit. Otherwise, you could be chasing down the seller who now has no interest in dealing with you. In deals like these, protect yourself and expect the worst in people even if it never materializes! Happy Investing!
You can NEVER say he can definately get another mortgage.
If you write a letter saying you have purchased the property sub2 and you are responsible for the PITI payment os $______________, that may go a long way to assisting his application to buy another home.
Only a RMLO can assist your buyer getting financing.
Wholesaler · Salt Lake City, UT · Member since 2009 · 1k+ posts · 401 votes
12y
Your on an investor site, think like an investor, If he doesn't qualify for a new loan in the amount he is looking for you do something like you would do, find a subject to, a lease option, whatever.. But first have him meet with a mortgage broker and have him give you written permission to talk to any broker he talks to and try for a new loan.
Last one I helped like that I had him takeover a home in foreclosure, he had enough money to cure the arrears and moved into a nice home which he still owns. and in his case his bank had a good chuckle when he applied. At that time banks were only looking for slam dunks and hoarding their bail out money, kind of like now..
Investor, Entrepreneur, Educator · Springfield, MO · Member since 2009 · 21k+ posts · 12k+ votes
12y
Matthew, who knows if the seller can qualify only his lender can answer that. Your deal, regardless of the promises you could possibly make will not relieve him from his obligations in the mortgage you assume, not immediately, after one year a lender will give it consideration. The mortgage will be considered in his debt ratios, we can't say if his income can carry the debt. :)
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
12y
I guess the real question is, will a lender view a subject to agreement the same way they'd view a lease agreement -- in other words, will the amount the seller is getting covered each month by the buyer be considered income towards his DTI?
Real Estate Investor · atlanta, GA · Member since 2013 · 456 posts · 237 votes
12y
Unlikely....has he stayed current on both mortgages with no lates and does he have the income to cover both mortgages plus the new one? That's where the rubber meets the road...bank really doesn't care about the subject to just that the mortgage is getting paid.
Both Brians give you good advice - be very leery of condos as HOAs can either change or enforce rental rules and limitations at the stroke of a pen...you can fight them legally but most times, once you start to fight with lawyers...you've already lost the battle. I've done a ton of condos and townhouses but never any subject to's....I prefer cash and clean but subject to's are a great way to take over & cashflow a property on someone else's credit. When I do these, I convert them to shared housing and cashflow like crazy. I did a 2/2 TH I bought for $15k spent $15k fixing it up, cut the living room in half to create a 3rd bedroom and sold it for $55k - my cash partner made 48% in about 5 months on the deal....pretty sweet. If you can do a similar thing, you can cashflow it and flip to a cash buyer. Just be sure to get a quitclaim deed signed by your seller and park it with your attorney to be held by him or her until the time you cash out the unit. Otherwise, you could be chasing down the seller who now has no interest in dealing with you. In deals like these, protect yourself and expect the worst in people even if it never materializes! Happy Investing!