Real Estate Pros
Figuring Out When “Subject To” Finance Makes Sense
Every property and seller is different, and no one strategy or structure fits everyone equally well. That’s why traditional mortgage lenders offer a wide variety of loan programs to fit different needs: Conventional, FHA, VA, USDA, DSCR, etc.
Your sellers have options too, and often more options than they realize.
It comes down to assessing goals and priorities and then picking a preferred funding strategy. “Subject To” Financing is not a good fit for every seller, but a sale with lump sum proceeds doesn’t fit every seller either.
Like any other Creative Financing structure, remember that when implemented well, Subject To Financing can maintain all of the following:
We’re here to support you as a professional, bringing you resources and options to help you sellers achieve their goals. Because we only win when you and your sellers win. We’re interested in building long-term relationships with quality professionals because we brought real value to them and to their sellers.
So, When is “Subject To” Financing a Good Option for Sellers?
Some sellers may not want to liquidate their equity all at once, and others may not have sufficient equity to close. For some, “Subject To” Financing may solve a problem, and for others, it’s a strategic preference. Either way, it’s a good tool to have in your belt.
If you haven’t already, you will run across sellers who feel stuck, because they’re ready to sell or move, but they need their existing mortgage to remain open longer.
This could be the case when they bought the home using government grant down payment assistance or a lender’s forgivable second (a second mortgage that does not require repayment if it is left open for a certain number of years). Others may have very limited equity because they are in the early years of a VA or USDA loan, and as a result, they cannot afford the closing costs of a traditional sale.
Subject To Financing gives these homeowners options to sell when they would be unable to do so otherwise.
Subject To Financing could also be a strategy to leverage great rates and terms from years past, even during the sale of their home. We will likely see more of these in today’s shifting mortgage market. Most sellers own their home with a mortgage they closed with historically low-interest rates 2-4% below what a new buyer will find in a new mortgage.
This could provide your seller with a creative and strategic advantage while negotiating offers.
Subject To Financing is also a good option for homeowners with a mortgage, who want to start pulling equity out, but want to do so over time, either as a tax strategy or to maintain their eligibility for a benefit or program based on limited cash assets.
And of course, Subject To is a great strategy for building out one half of a Hybrid Financing structure. This combines Seller Financing & Subject To Financing when a seller has some combination of equity built and remaining debt in a mortgage, tax lien, or another form.
In these cases, Subject To Financing provides sellers with options to use Seller Finance with terms they control to increase their return on the equity they have built and still an existing mortgage paid off under its current terms.
In Subject To Financing, the seller controls the contract terms with far more flexibility than is available to financing institutions. As a result, Subject To contracts can be written more generously in the seller’s favor, with simpler mechanisms for control and recourse.
Subject To Financing can be used when homeowners feel stuck and unable to sell or for sellers who want to use it more strategically for negotiating leverage or as a taxation and asset strategy.
You’re the market expert; our goal is to support you by offering solutions to present to your sellers when it makes sense. You’re right to take seriously your role to guide your clients faithfully to the best option for them, and you should be paid for your expertise; they’re lucky to have you!
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