If you’re like most homeowners, you probably went through a local bank to get a mortgage. After a month or two, you probably then received a letter saying your mortgage had been sold and to start making payments to the new lender. This scenario is very common and is an accepted practice within the banking industry. But did you know that homeowners can do the same? That's right! You can sell your mortgage just like a big bank! This article will show you how to sell your mortgage and explain the benefits Easy Outs Homes delivers when we buy house’s subject to the existing mortgage.
What it means to sell your home subject to the existing mortgage
Selling “subject-to” the existing mortgage means selling your home and keeping the existing mortgage in place. You get paid for your equity, and Easy Outs Homes takes over the remaining mortgage balance. As the new owner, Easy Outs Homes makes the monthly mortgage payments, pays the property taxes, insurance, HOA dues, and all other obligations related to the home. Selling subject-to your existing mortgage is quite simple and is a valuable choice for homes and homeowners in nearly all situations.
When selling subject-to the existing mortgage, Easy Outs Homes is able to give sellers like you more money because you aren’t having to pay traditional costs like realtor commissions (6% savings), closing fees (2% savings), and seller concessions (2% savings). When we buy your home subject-to its existing mortgage, we pay all closing costs and buy the home in “as-is” condition, which means you have zero repair costs (1+% savings).
Because Easy Outs Homes avoids future financing costs when you sell your mortgage, we pass that cost savings onto you, which means more money in your pocket. At closing you receive a direct cash payment which is based on your home’s condition, mortgage payment, equity, and the estimated monthly rent.
When you sell a house "subject-to," it means the buyer agrees to make payments on the seller’s mortgage going forward in exchange for ownership of the property.
With a “subject-to” sale, your name and the current terms of your mortgage stay the same. In other words, the buyer is not assuming your loan; he or she is simply continuing to pay down your mortgage just as you would. The only difference is the new buyer will own the deed to the house.
Although no loans are “assumable,” anyone can make payments on anyone else’s mortgage. And as long as payments are made, the bank will consider the mortgage to be performing. You may have seen signs or heard people say, “We take over payments.” Selling your house subject-to the mortgage is essentially the same thing; it allows the new buyer to take over your payments on the mortgage and reinstate the loan if it is behind.
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Why homeowners consider selling subject to the existing mortgage
The biggest perk of selling your home subject-to is that it reduces transactional costs for both buyer and seller. This means 3 things: (1) sellers have zero expenses, (2) buyer has zero financing costs, and (3)buyer passes its cost savings onto the seller. Other reasons for selling your house subject to the existing mortgage are situations where homeowners: 1)need fast cash, 2)are behind on mortgage payments,3) are facing foreclosure, 4) have little or no equity, 5) want to improve their credit, 6) want to get the most money possible.
Benefits of Selling Your House “Subject-To”
Save and Improve Your Credit
Because the loan stays in your name, your credit will actually improve as the mortgage is paid on time each month.
Get Instant Debt Relief
In cases where you owe more than the home is worth, it can help you get out from under that debt and move on with your life.
Earn More Value From Your House Sale
It helps the buyer reduce costs when purchasing your home and, as a result, you can get more value out of your house sale. The higher your loan balance, the more money it saves.
Avoid a Foreclosure
Need to sell your house quickly? Selling subject-to allows the buyer to purchase your house quickly even if it needs repairs or has little to no equity.
Full Loan Transparency
The buyer will arrange for a loan servicing company to collect payments and send you monthly/annual statements for full loan transparency.
Still Able to Purchase Another Home
Although dependent on your lender, your debt-to-income ratio won’t be hurt when a contract shows that your legal obligation to the debt was sold subject-to.
Considerations for Selling Subject-To
Your Name Stays on the Loan
The reason you get more value for your house with this option is that it comes with financing! With 65 million people unable to qualify for a home loan, homes that come with financing sell faster and for more money. To make that happen, the existing loan must be left in place.
Mortgage Company “Due on Sale Clause”
A lender reserves the right to call a loan due on a home in which ownership has changed. When a lender takes back a property either by foreclosing or calling a note due, they are "punished" by the Federal government for having a non-performing loan. That being said, it is extremely unusual for a lender to call a note due on a home for which the payments are being made.
If you have an existing loan in place, selling your house “subject-to” is the best way to unlock the most home equity possible while building your credit at the same time. It truly is a win-win for all parties.
We are experts in purchasing houses “subject-to,” and it is our preferred method for buying houses. If you have a house that you are interested in selling, we would be grateful for the opportunity to discuss this incredible option with you.
The pros and cons of selling your home subject-to
No matter the method for selling your home, each has their benefits and drawbacks. Selling subject-to is no different. In most situations, however, the benefits outweigh the disadvantages. So, what are the pros and cons of selling a house subject to?
Potential pitfalls of selling your home subject to
a. Due on sale clause. Every mortgage has a provision that is commonly referred to as the due-on-sale clause which says that the lender has the right, but not the obligation, to call the mortgage due upon a change in ownership. On the surface, this seems quite scary; however, banks rarely, if ever, invoke this clause.
b. The mortgage is a VA Loan. Although with VA loans you absolutely can sell a home subject to its existing mortgage, one must note that it could impact your ability to obtain another VA loan in the future. To stay within the VA mortgage entitlement limit, the total amount of all VA loans in the name of a single individual cannot exceed $726200 for single family house and $929850 for two unit in Harford County, Maryland. Even though obtaining a 2nd VA loan is possible, we must reiterate that there are specific criteria that must be met and therefore we encourage homeowners to speak with a reputable VA lender or to investigate other low-cost mortgage options like Fannie Mae, Freddie Mac, and FHA loans.
c. The mortgage stays in your name. For some homeowners, this may not be ideal while for others, it’s extremely beneficial. Homeowners who intend to buy a new home after selling their old home, may not be immediately eligible for a new mortgage if they do not meet standard underwriting requirements. Conversely, homeowners with poor credit will see a boost in their credit score as Easy Outs Homes continues to make the monthly mortgage payments (Easy Ots Homes has never missed nor made a late mortgage payment).
Advantages of selling my home’s mortgage
a. Make more money: In most situations you will make more money than you would with a traditional sale. Here’s why: 1) you pay no closing costs, 2) Easy Outs Homes pays no financing costs, and 3) Easy Outs Homes passes its savings on to you. In short, you have no expenses, our costs are reduced, and therefore we can pay you more.
b. Make money even with no equity: Homeowners with less than 11% equity who try to sell traditionally will have to bring money to the closing table. When selling your home subject to its existing mortgage where you have 11% or less in equity, Easy Outs Homes can still pay you up to $10,000.
c. Your mortgage is brought current: If you’re behind on mortgage payments, Easy Outs Homes will catch-up all missed payments so that your loan is brought current. This is a critical step to improving your credit.
d. Fastest closing: Homeowners who need fast cash or a quick closing can sell their home subject to the existing mortgage in as little as 1 day. Closing a traditional sale averages 40-50 days.
e. No inspections, repairs, surveys, or appraisals: You went through this process when you bought the home. Because you already have a loan in place, there is no need to repeat these steps, so closing a subject to mortgage is very simple!
f. Easiest closing: Our team provides full-service sell your mortgage solutions meaning we complete all tasks needed to close. On occasion, you will need to provide basic information but your most time intensive obligation will be signing closing documents and collecting your cash.
Common questions about selling a home subject to
Can I get a new mortgage if I sell my old home subject to?
You can get a new mortgage for a new home as fast as the day after selling your old house subject to. Doing so is dependent on your personal credit and lender requirements. Even if you have subpar credit, the good news is - all is not lost.
Once Easy Outs Homes takes ownership of your old mortgage, the title is transferred out of your name, and therefore, the mortgage no longer counts against your debt-to-income ratio. Moreover, because we’ve been making the mortgage payments on time and in full, your credit will improve. At this point, sellers need only to meet standard underwriting requirements.
How long will the mortgage I sold stay in my name?
When we buy homes subject to its existing mortgage, our commitment is to continue to pay the mortgage (and all other obligations related to the home) until the mortgage balance hits zero. Nevertheless, we are willing to negotiate a timeframe in which we are required to pay off the existing mortgage. Although there is no guarantee of the below occurring, there are a couple scenarios where the mortgage you sold would be paid off early.
a. The 1st scenario where the mortgage would not stay in your name is the home is sold on the MLS which could happen as soon as the home reaches 25% equity. In this scenario, the sale proceeds would be required to pay off the existing mortgage in full.
b. The 2nd scenario where the mortgage would not stay in your name is once the home achieves 50-55% equity or to take advantage of lower interest rates. In this scenario, Easy Outs Homes would refinance out of the mortgage you sold, and the new lender would pay off the subject to mortgage in full.
What homes cannot be sold subject to the existing mortgage?
We’re not breaking news here - we invest in real estate to make money which is achieved by renting homes for cash flow and/or building equity in them over time. In a subject to transaction, we are paying you cash for the equity you’ve built meaning that we have zero equity at our purchase. As such, our focus is on generating a return through renting the home.
There is no one-size-fits-all approach but the simplest test for a “doable” deal when we buy houses subject to the existing mortgage is that the monthly rent must be greater than the monthly mortgage payment. In today’s market this has become challenging which demands that we consider the factors that make your home unique. These include characteristics like stainless steel appliances, updated bathrooms and kitchen, location, the neighborhood, and your home’s overall condition. In an ideal world, these factors align to produce monthly rents that exceed the monthly mortgage payment.
Because we do not live in an ideal world, Easy Outs Homes uses the above characteristics to predict the property’s rate of appreciation which is a notable factor in determining if a home can be sold subject to its existing mortgage. In short, we trade cash flow while betting on appreciation. In so doing, we are open to losing about 1% in annual cash flow relative to the home’s value. For instance, if the market value is $300,000, we can probably live with a -$3,000 annual loss. But if the monthly rent equals or is greater than the monthly mortgage payment, you may be saying, "that doesn’t add up, you should be making money!” Many homeowners don’t consider the cost of owning rental real estate, which we call V.C.R.T.I.P. (Vacancy. Capital expenditures. Repairs. Taxes. Insurance. Property management).
In nearly all cases, when we buy homes subject to, Easy Outs Homes loses money during its first 3-5 years of ownership.
When I sell my mortgage, how am I protected?
Since the mortgage remains in the seller’s name, safeguarding and improving the seller’s credit and financial standing is of paramount importance. To that end, sellers receive the following protections:
a. Bank draft: Our commitment is to pay in-full each month the mortgage and all other obligations related to the home. At closing, a limited power of attorney will be signed giving Easy Outs Homes the right to set up a connection with the mortgage company so that payments can be made via ACH draft from our bank account. If desired, we will email confirmation of payment to you each month. Furthermore, after selling your home subject to the existing mortgage, you will retain access to your online account and may contact the lender directly to verify the mortgage you sold is current.
b. Multiple assets we can borrow against: Easy Outs Homes maintains a cash account and owns multiple properties with significant equity that we can borrow against to meet our financial obligations to you.
c. Cash account: Although unheard of, should the lender choose to call the loan due, our secure financial position guarantees that we’ll be able to meet our financial responsibilities to you. Furthermore, when renters of the house you sold subject to the existing mortgage do not pay rent, our cash account guarantees that the mortgage payment will continue being made.
d. Credit report: If desired, Easy Outs Homes will provide you with a recent personal credit report of its managing members who have maintained a minimum credit score of 750+ since 2010.
e. You can foreclose on us: When someone doesn’t make their mortgage payment the bank can take back the home. And remember that when you sell your mortgage you become the bank? At closing you can elect to receive a promissory note which is a signed document that promises to pay the balance of the existing mortgage. You can also elect to receive a deed of trust, which is a document that enforces the promissory note.
With these documents, if Easy Outs Homes does not make the mortgage payments (we guarantee all obligations will be paid in full, on time), you can foreclose on us and take back the property! Although this situation may not be ideal for you or us, it wouldn’t be terrible for you, either.
Why? You would keep the cash that we paid you at closing, and you would get to capitalize on any improvements and appreciation that have taken place since you sold your home’s mortgage to us. We obviously do not want to be foreclosed upon, so we are highly incentivized to follow-though on all our commitments to you.
How is closing handled when I sell my home subject to its existing mortgage?
When you sell your home’s mortgage to Easy Outs Homes, we close subject to transactions with a real estate attorney who is knowledgeable in the legalese of buying and selling homes subject to the existing mortgage. We pay all closing costs and can close in as little as 1 business day.
FAQs – What it means to sell your home subject to its existing mortgage
1. What will you need to provide me with offers to sell my home subject to its mortgage?
Just 3 things:
1) your monthly mortgage payment
2) whether your mortgage payment includes escrow for property taxes and insurance;
3) the estimated remaining mortgage balance. Once received, we will provide you with solid offers that are contingent on visiting the home to determine if repairs are needed. If necessary, our subject to the existing mortgage offers will be offset by the cost of repairs.
2. What are the tax implications when I sell my house subject to the existing mortgage?
Once the title of the property is transferred out of your name, you no longer have any tax obligations or receive the tax deductions associated with the home.
3. How long does it take to close when I sell my mortgage?
Easy Outs Homes can close in as little as 1 business day. The average time to close a subject to transaction is 4 business days.
Get more by selling your house subject to!
With our sell your mortgage solution most homeowners will get more money than selling on the MLS. You avoid showings, staging, and all the hassles and headaches of a traditional sale. The easy Outs Homes team provides full-service solutions that pay you cash in as little as 1 day and we will even pay up to $10,000 for homes with no equity. We cover all closing costs, will bring your mortgage current, and can even help you find and move into your next place. It’s time for you to thrive with Easy Outs Homes!