Florida Homeowner’s Simple Q & A on how to sell with Subject to !!
Q1: What does ‘low equity’ mean for selling my home?
Low equity essentially means that the amount you owe on your mortgage is very close
to, or even exceeds, the current market value of your home. This situation can arise due
to various factors, such as a recent decline in property values, taking out a second
mortgage or home equity line of credit (HELOC), or simply not having owned the home
long enough to build substantial equity through principal payments. When you have low
equity, a traditional sale can be problematic because the proceeds from the sale might
not be enough to cover your outstanding mortgage balance, real estate agent fees,
closing costs, and other expenses. This could leave you owing money at closing, which is
a position most sellers want to avoid.
Q2: What are creative finance options?
Creative finance refers to non-traditional methods of buying or selling real estate that go
beyond the conventional bank loan and cash transactions. These strategies are
particularly useful when traditional financing is difficult to obtain, or when one or both
parties have specific needs that conventional methods cannot meet. For sellers with low
equity, creative finance can open up new avenues to sell their property without incurring
significant out-of-pocket costs or even having to bring money to the closing table. Some
of the key creative finance options include assumable mortgages, subject-to sales, and
seller financing.
Q3: Can a buyer take over my existing mortgage (Assumable Mortgage)?
An assumable mortgage is a type of home loan that allows a new buyer to take over the
seller’s existing mortgage, including its remaining balance, original interest rate, and
loan terms. This can be a highly attractive option for buyers, especially in a rising interest
rate environment, as they can secure a lower interest rate than what’s currently
available on the market.
Pros for the Seller:
Attracts More Buyers: In a market with high interest rates, an assumable mortgage
with a lower rate can significantly broaden your pool of potential buyers, making
your property more appealing.
Potentially Faster Sale: The appeal of a lower interest rate and potentially fewer
closing costs for the buyer can lead to a quicker sale.
Reduced Buyer Costs: Buyers assuming a mortgage often face fewer out-of-pocket
expenses compared to obtaining a new loan, as they avoid some typical closing
costs like origination fees.
Cons for the Seller:
Seller Might Remain Liable: Unless the lender explicitly releases you from liability,
you could still be responsible for the mortgage if the buyer defaults on payments.
This is a critical point to discuss with your lender and legal counsel.
Not All Loans Are Assumable: Most conventional mortgages contain a ‘due-on
sale’ clause, which means the entire loan balance becomes due upon sale or
transfer of the property. Government-backed loans, such as FHA, VA, and some
USDA loans, are typically assumable, but conventional loans are generally not.
Key Considerations:
Lender Approval: Even for assumable loans, the lender will typically need to
approve the new buyer, who must meet certain credit and income requirements.
Equity Payment: The buyer will need to compensate you for the equity you’ve
already paid into the home. This amount is essentially a down payment for the
buyer and can be paid in cash or through a separate financing arrangement.
Q4: What is a ‘Subject-To’ sale?
A ‘Subject-To’ sale is a transaction where the buyer takes ownership of the property, but
the existing mortgage remains in the seller’s name. The buyer then makes the mortgage
payments directly to the seller, who in turn pays the original lender. The deed to the
property is transferred to the buyer, giving them control of the home without formally
assuming the loan.
Pros for the Seller:
Quick Sale: Subject-to sales can facilitate a very fast closing, as the buyer doesn’t
need to go through the lengthy process of obtaining a new mortgage.
Avoid Foreclosure: For distressed sellers facing foreclosure, a subject-to sale can
be a lifeline, allowing them to offload the property and avoid the negative impact
on their credit.
Attracts Non-Traditional Buyers: This method is appealing to buyers who may not
qualify for conventional loans due to credit issues or lack of a down payment.
No Need to Pay Off Mortgage: You don’t need to come up with funds to pay off
your existing mortgage at closing.
Cons for the Seller:
Mortgage Remains in Your Name: The biggest risk is that the mortgage remains
your legal responsibility. If the buyer fails to make payments, your credit will be
negatively impacted, and you could face foreclosure.
Due-on-Sale Clause Risk: Most mortgages have a ‘due-on-sale’ clause, which gives
the lender the right to demand full repayment of the loan if the property is sold or
transferred. While lenders often don’t enforce this if payments are being made, it’s
a risk to be aware of.
Trust and Vetting: You are relying on the buyer to make timely payments, so
thorough vetting of the buyer is crucial.
For a limited time, we offer FREE Home Evaluations with comparables – No obligation. This will help you see what your home is worth!
If you need help, please don’t hesitate to contact us at www.esbiz.net or 888-832-5557