Subject To real estate investment is a way to invest in real estate without putting a lot of cash on the line or going through a credit check or lengthy closing process. The idea behind a Subject To agreement is that the investor buys a property subject to the current financing rather than obtaining a new loan. Before you jump into a Subject To purchase, it’s necessary to know the inner workings, what to expect, and the step to take to accomplish a smooth deal.
Is It Mortgage Assumption or Subject to Mortgage?
Subject To investing, often referred to as “Sub 2” or “Sub To,” means you pay the existing mortgage while it remains in the seller’s name, but you take the title to the property. As with a traditional purchase, the seller moves out and you have complete ownership. You can renovate or repair the home to put on the market for sale, or you can give it a quick cosmetic makeover and rent it out to allow the property to gain more equity while you’re still able to cover the mortgage.
You got it. You’re taking on a mortgage that isn’t in your name. Subject To investing is different than assuming a mortgage:
- Subject To: You pay the monthly mortgage while it remains in the seller’s name, avoiding a credit check and bypassing lender approval.
- Mortgage Assumption: You assume the liability of the mortgage from the seller, which requires the approval of the lender, and ultimately means you could be denied the loan.
While this type of real estate investing seems questionable, it’s not only perfectly legal, but it can also be very profitable.
Is Subject To Real Estate Legal?
While Subject To investing isn’t without its risks (and what investment isn’t?), it is a perfectly legal practice. People often confuse the Due On Sale Clause as the bank’s way of calling out an illegal action, but the idea of taking over a mortgage is a contractual issue, not a legal one.
The lender has the right, if it realizes the property title has changed hands, to call for the mortgage to be paid in full, referencing the Due On Sale Clause. If the loan isn’t paid in full – which is the investor’s responsibility – the home can be put into foreclosure. The foreclosure would be in the seller’s name, since they are the owner of the original mortgage.
While it’s possible, lenders very rarely call for a loan payoff as long as the monthly mortgage is getting paid on time. It costs a lender on average about $50,000 to foreclose on a property, so if the bank is receiving timely mortgage payments, it’s not likely to take action toward losing money.
Benefits Of Subject To
Sub 2 investments offer a number of benefits to real estate investors:
- Avoid a credit check: Because you’re not obtaining a new loan, there’s no credit history check.
- Save time: No lengthy closing process and waiting on paperwork to change hands.
- Save money: Avoid traditional closing costs, realtor fees, and other costs that take away from your profit from an investment property.
- Minimal risk: Your reputation as a real estate investor relies on you staying current on the mortgage, even though it’s in the seller’s name. However, if something goes wrong with the loan and the home is put into foreclosure, it’s the seller’s credit that takes the hit.
If the idea of real estate investing without tons of cash sounds good to you, keep Subject To purchases in your arsenal of investment tools. Sub 2 deals help you avoid the lengthy loan application process, closing procedure, and large down payment.
Subject To investing, often referred to as “Sub 2” or “Sub To,” means you pay the existing mortgage while it remains in the seller’s name, but you take the title to the property. As with a traditional purchase, the seller moves out and you have complete ownership. You can renovate or repair the home to put on the market for sale, or you can give it a quick cosmetic makeover and rent it out to allow the property to gain more equity while you’re still able to cover the mortgage.
You got it. You’re taking on a mortgage that isn’t in your name. Subject To investing is different than assuming a mortgage:
- Subject To: You pay the monthly mortgage while it remains in the seller’s name, avoiding a credit check and bypassing lender approval.
- Mortgage Assumption: You assume the liability of the mortgage from the seller, which requires the approval of the lender, and ultimately means you could be denied the loan.
While this type of real estate investing seems questionable, it’s not only perfectly legal, but it can also be very profitable.While Subject To investing isn’t without its risks (and what investment isn’t?), it is a perfectly legal practice. People often confuse the Due On Sale Clause as the bank’s way of calling out an illegal action, but the idea of taking over a mortgage is a contractual issue, not a legal one.
The lender has the right, if it realizes the property title has changed hands, to call for the mortgage to be paid in full, referencing the Due On Sale Clause. If the loan isn’t paid in full – which is the investor’s responsibility – the home can be put into foreclosure. The foreclosure would be in the seller’s name, since they are the owner of the original mortgage.
While it’s possible, lenders very rarely call for a loan payoff as long as the monthly mortgage is getting paid on time. It costs a lender on average about $50,000 to foreclose on a property, so if the bank is receiving timely mortgage payments, it’s not likely to take action toward losing money.Sub 2 investments offer a number of benefits to real estate investors:
- Avoid a credit check: Because you’re not obtaining a new loan, there’s no credit history check.
- Save time: No lengthy closing process and waiting on paperwork to change hands.
- Save money: Avoid traditional closing costs, realtor fees, and other costs that take away from your profit from an investment property.
- Minimal risk: Your reputation as a real estate investor relies on you staying current on the mortgage, even though it’s in the seller’s name. However, if something goes wrong with the loan and the home is put into foreclosure, it’s the seller’s credit that takes the hit.
If the idea of real estate investing without tons of cash sounds good to you, keep Subject To purchases in your arsenal of investment tools. Sub 2 deals help you avoid the lengthy loan application process, closing procedure, and large down payment.
