If you need to sell your property fast, you want to know all your options.
When you need to sell quickly, some real estate investors might offer to buy your property “subject to.” Though a “subject to” offer often looks appealing, it can be risky.
Below we’ll cover what it means to sell “subject to” and discuss sellers’ risks. We’ll also talk about alternative solutions if you need to sell your home fast.
What does it mean to sell a property “subject to”?
When you sell a property “subject to,” a buyer agrees to purchase your home “subject to” your existing mortgage loan.
In other words, you sign the deed over to the buyer, but the mortgage is still in your name. And the buyer agrees to make the payments to your existing mortgage until it gets paid off.
In “subject to” sales, the buyer does not have an official agreement with the lender. Most of the time, the lender is unaware the property has exchanged hands.
Selling “subject to” the existing mortgage is different than most real estate transactions. Most of the time, the buyer pays cash – either cash they have on hand or from a loan they get in their name. In this situation, your current mortgage gets paid off at the time of the sale. This means you no longer have financial responsibility for the loan and can walk away free and clear.
What’s the difference between “subject to” and assuming a loan?
In a “subject to” sale, the buyer doesn’t work with the lender at all; they take over the seller’s existing mortgage. The seller’s name remains on the loan. So, the seller is ultimately responsible for the mortgage, even though they don’t own the property.
But when a buyer “assumes” a loan, they work directly with the lender and become the official mortgagee. The seller’s name gets removed from the mortgage, and they have no further responsibility to the lender. (Buyers can only assume certain types of mortgages.)
Who buys “subject to” properties?
Some real estate investors use “subject to” contracts to buy homes from sellers that need to sell fast.
If you need to sell your home fast, selling your house to a reputable company – for cash – can be a good way to do it.
But beware of offers to buy your property “subject to.” It can carry some big risks.
Some investors claim that your credit will improve if you sell “subject to.” And it can, if they make the payments on time, every time. But you have to trust that they will actually follow through on their promise to make the payments. It’s a leap of faith that can lead to problems down the road.
Some real estate investors like to buy properties “subject to” because it’s easier for them. In “subject to” sales, they don’t need to have a lot of cash or qualify for a loan. When you sell “subject to,” you take on the risk for the buyer.
There are circumstances where “subject to” can work for both a buyer and a seller. But the seller has to completely trust that the buyer will follow through and make the payments.
Is selling “subject to” risky?
Below are some of the risks of selling your property “subject to.”
If you sell a property “subject to”:
- It could impact your credit report. If the buyer fails to make payments on time, it will hurt your credit (not theirs). Since the loan is still in your name, missed payments get reflected on your credit score and history.
- It could prevent you from getting a new loan. If you apply for a new loan, the mortgage from the “subject to” property still shows up on your credit report (until it gets paid off). The payment on that property gets counted as your debt. So, even though you’re not making the payments, it raises your debt to income ratio. Until the mortgage gets paid in full, it can affect your ability to get a car loan or new mortgage.
- Your loan could get “called due” by the lender. If the lender finds out that you no longer own the home, they can use what’s called a “due on sale” clause and call the loan due. If this happens, the loan has to get paid off quickly, or the lender can seize the property. Though it’s uncommon for this to happen, it’s a possibility.
- Insurance can get tricky. Since your name is on the mortgage, you still need to be on the homeowner’s insurance policy. But the buyer should also be listed on the policy. Though this is possible, it can get tricky. And, in some circumstances, it will alert the lender that there was a transfer of ownership.
- You may not know how long the mortgage will affect your credit. You don’t know when your mortgage will get paid off – unless spelled out in your contract with the buyer. It could be a few months or a few years. Without this information, you can’t predict how long it will affect your credit.
Sell your home quickly (without the risks of “subject to”)
If you fall on hard times and need to sell your property fast, know that you’re not alone. Many people experience financial problems because of divorce, job loss, medical bills, and other life situations and need to sell their property quickly.
But selling “subject to” is not your only option. It could lead to more financial problems later. There are other, less risky ways to sell a property and close fast so you can move on with your life.
Most reputable home buying companies will pay cash for your property. A cash sale means you can get your name off the mortgage and not worry about any future financial obligations for a property you no longer own.
Get your questions answered and seek legal advice.
When you need to sell your home, you already have a lot going on. But understanding how the process works is important, no matter what method you choose.
Any reputable buyer will listen to you and answer all your questions. They will focus on your best interests and help you through the process. Plus, you shouldn’t feel any pressure to make a decision. Always be wary of high-pressure sales tactics.
If you are thinking about selling your property “subject to,” it’s wise to get legal advice before signing any legally binding contract. We recommend contacting Iowa Legal Aid for help.
Legal implications of “subject to” deals
Each state has different laws for “subject to” real estate transactions. We recommend you research your local laws and consult a lawyer before entering into any legal contract.
Need to sell fast? Find the solution that fits you.
If you need to sell your home fast and live in the Des Moines area, Sell Now Iowa is here to help. We do NOT practice purchasing property “subject to.” Instead, we will work with you to find the best solution for you, no matter what condition your property. Our professionals will guide you through the process and show you how quickly you can sell your house for cash. Give us a call today at 515-531-2274.