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“I’ve never heard of that!” – What most sellers tell me when I first explain buying their house “subject-to” the existing mortgage.
Sometimes, a house has plenty of equity and I can pay cash. Other times, there just isn’t enough equity to buy the property at price that make sense for me. Solution? Buy the property and keep the original loan in place.
So, what’s a sub-2, anyway? Who would anyone want to sell their house subject to the existing mortgage in Austin?
Well, first let’s start with what it is. When I buy a house subject to the existing mortgage, that means I buy the house and the property is deeded to me, however, the original lien (loan) stays in place. It does not get paid off at closing. So instead of me going out to get a new bank loan, I simply begin taking over your payments. Here are the questions sellers usually ask me when deciding if selling sub-2 is right for them. That is basically what I do, except I don’t physically mail a check, I pay it through my bill pay and my bank sends your mortgage company the check.
Q: Should I call my bank and ask them if the loan is assumable?
A: No. I do not assume the loan. Most loans are not assumable, anyway. What I do is simply start making the payments. The best way I can explain it is this: say your nice Aunt Mathilda decides that she is going to help you out. She has plenty of money and is going to start paying your mortgage for you. She simply gets her checkbook out, and starts sending the bank the check each month.
Q: What about the due-on-sale clause?
A: Most mortgages have what’s called a “due on sale clause.” This gives banks the right (but not the obligation) to call the loan due, if the house is sold. This is typically a non-issue. In general, banks are happy to keep collecting payments on their loans. That is how they make money. Real estate investors have been buying houses sub-2 for ages. This would not happen if loans were frequently called due. If for any reason the loan is called due, the house would have to be sold or refinanced so the loan could be paid.
Q: Does the loan stay in my name?
A: Yes, the loan stays in your name and on your credit. With continued payment, this can actually have a positive effect on your credit score over the years.
Q: Why would I want to sell my house with the loan still in place?
A: You have to look at all your options. If you need to sell, this may be your best option. If you need heart surgery, you don’t exactly WANT to have your chest opened up, but what are your options? If you want to save your credit and not make 2 payments every month, this may be your best option.
Q: How do I know if the loan is being paid?
A: You can log in to your account and check! I always pay more than the amount due and pay a week or two before the payment is due. Funds are withdrawn from my account automatically month after month.
Q: What does my loan have to look like, in order for you to be interested in buying my house subject to the existing mortgage in Austin?
A: In general, I look for 30 year fixed rate mortgages with interest rates in the 3 to 5 percent range. The monthly payments need to be lower than the amount of rent I can collect on the house each month.
The biggest pro to the seller, as I see it, is that it is a quick closing and provides immediate debt relief. This is very helpful for someone who has been transferred, for example and has bought a house in the new location and still has the old house, too. Having two payments may be doable for some, but even if you CAN make both payments, who in their right mind would want to?
Sometimes it’s impossible to sell the house without paying money out of pocket, because there is not enough equity in it to pay a Realtor commission. This is another example of when selling it sub-2 to an investor can help.
I hope this answered some of your questions about whether you should sell your house subject to the existing mortgage. You can learn a lot more by googling “selling my house subject to the existing mortgage.”
If you would like to sell your house please fill out our basic property information sheet at our home page www.TheTexasHouseBuyer.com or leave us a message at our pre-recorded line at 512-593-6990 and we will call you back.
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