When you make a subject to existing financing offer to purchase a home, it’s important to make sure the seller understands how this type of deal works. First, the seller needs to understand that his or her mortgage is going to remain in place but you’ll be taking over the payments. You’ll also be making a monthly payment directly to the seller for the value of the house above the remaining mortgage amount.
Open and honest communication will convince them that you are a professional investor working to create a win-win deal for both of you. Let them know they are welcome to ask all of the questions they have and you’ll do your best providing answers.
Seller’s question: Can I have an attorney look over the subject to deal?
Investor’s answer: Absolutely. I encourage it when you’ve never done a subject to deal before.
Seller’s question: What happens if you become incapacitated or die?
Investor’s answer: The subject to deal has contractual provisions for my heirs to continue the contract in the event that I become unable to as part of managing my living will or estate.
Seller’s question: How long will it take you to refinance the mortgage?
Investor’s answer: I can’t give you an exact date. What I can tell you is that I will immediately go to work looking for a buyer/tenant as soon as we close the subject to deal. I may find a qualified buyer right away or I might put a buyer/tenant in the house on a lease option contract. It could be a couple of years but I will keep the mortgage paid as required in the subject to deal.
Seller’s question: I’ve heard of the “due on sale” clause. Why doesn’t it apply to your subject to deal?
Investor’s answer: Technically, the due on sale clause does apply. In reality, the bank won’t enforce it as long as the mortgage continues being paid on time. The bank would much rather keep a mortgage in place that is being paid than risk a foreclosure.
Seller’s question: Why aren’t you offering my full asking price?
Investor’s answer: In a subject to deal, you are saving several expenses and as an investor, I’m trying to make a profit. The subject to deal that I offer is a fair price when you consider you won’t be paying a realtor’s commission and I’m not asking you to make any repairs. You also know you have an immediate sale. If you list it with a realtor, you have no idea when it might sell or if it will sell for your asking price.
Seller’s question: If I wanted tenants in the house, I’d rent it myself.
Investor’s answer: I understand. Many tenants don’t take care of the places they live in. That’s one of the main reasons I go with lease options. These are people that want to buy the home. They take much better care of the house than your average renter does.
Communication, fairness, and honesty often make the difference between closing a subject to existing financing deal or having the seller say no.
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