In some cases selling your Florida home can be difficult, especially if you owe as much, or more, than it is worth. One option that many have become aware of (but few understand) is Subject-To.
You may have actually heard investors talk about “taking over payments” or seen those types of signs on street corners. Well, purchasing your home subject-to the existing financing is what investors are referring to.
Why Do Investors Take Over Payments or Buy Florida Houses “Subject To”
For Moses Buys Houses, as an investment company, to take over your mortgage payments, we begin to care less about the purchase price and more about the monthly cost and what kind of repairs it needs. So basically, what’s your payment and what kind of condition is your home in?
If you have a $100,000 house that you owe $95,000 on, we will buy your home subject-to the existing financing if it is in excellent condition and if the payment is (at minimum) $300 less than exactly what we can rent your home for.
This gives us some room to generate a profit because we are going to rent the house out till it either appraises for more than the loan or until the loan balance is considerably less than the present value. In some cases, investors will refinance after several years and pay off the original mortgage. And in other cases, investors will make your payments for the entire life of the loan.
Sounds like a great deal for the investor, right? Well, not so fast. The major risk for the investor is that the homeowner (who is already having financial problems) can’t get the finances in order, even without this mortgage draining them — so they may end up declaring bankruptcy. Therefore, the overall financial health of the home seller is key to an investor not losing everything they put into the home.
The Pros & Cons of Selling Your Florida Home “Subject To”
So the most crucial thing is that you fully comprehend what is happening. What gets individuals into problem the most with these types of deals is the miscommunication. And, often, total absence of interaction.
If you are late on mortgage payments or owe more than the house is worth, then selling it on the open market or to a cash buyer is not really an option without doing a short sale. So what’s a homeowner to do if they can no longer make payments and cannot sell the property to pay off the mortgage?
That’s where selling your Florida home subject to can help. You’re basically off-loading your monthly payments to someone else, so you can stay afloat. For homeowners trying to avoid foreclosure, this is a great option.
What Homeowners Need to Consider Before Selling Their Florida Home “Subject To”
Mortgage Stays In Place
You still own the mortgage. You do not own your house any longer, however you are still responsible for the mortgage. That is scary for some individuals. It is also risky because the new owner (the investor) has no home loan liability — no “skin in the game” besides the initial investment (catching up back payments, repairs, etc.) and the monthly payments.
Length of Loan is TBD
The home loan could stay in your name for the entire life of the loan. This doesn’t sit well with some people. And it might also make it tough to obtain another loan due to the fact that it is going to skew your debt-to-income ratio, which could impact your ability to get other loans in the future. On the other hand, the investor may refinance after several years or sell it to another homeowner, at which point the original mortgage would get paid off.
Trust is Paramount
Never consider doing a transaction such as this without trusting the investor. Get referrals. Be familiar with him/her. Do not just sign the papers. Actually comprehend exactly what it is you’re doing. Also, get your own attorney included. As mentioned above, the investor has to trust you too and assess whether or not you’re a bankruptcy risk.
Subject to transactions aren’t for everyone. But if you don’t have much equity in your Florida home and you need to get out of it, selling your home subject to existing financing might make a lot of sense. It can save some folks from messing up their credit for years by going through a short sale or foreclosure.