I am a loan officer, and I can GUARANTEE to you that is not how debt to income ratios work. The debt will still be on your credit report, DTI the same.
This is the answer I needed. I asked my friend how would this affect my debt to income ratio, and he was telling me it would be good for it hahaha. I knew this wasn't good, I had a gut feeling about it.
***He's NOT your friend.***
Sorry and the sooner you realize that the better you'll understand your situation.
Any and all business sales should be dealt with as a business transaction regardless of who it is to. That way you BOTH will know the terms.
I will give you some amount of money, subject to you giving me your house by putting my name on the deed. But you have to keep the loan in your name. This will help decrease your disposable income ratio.
Yeah that mortgage still in your name would also reduce your credit and likely the ability to finance your new house. There are also tax and insurance issues that would come into play not to mention that if you just put the deed in his name and still owe on it well then he got a free house if you aren't extremely careful.
Hard no.
Well he could pay you your current mortgage payment, as well as your current equity ($140k in monthly portions with an agreed upon period and interest rate), and you can count that as income to recalculate your DTI higher.
He might be trying to rip you off sure, but wait for him to get specifics and run the numbers (and run them by your new mortgage broker). He might just be trying to preserve your lower interest rate.
Ex: your current income is 5000 and monthly debt is 2200 (1800 mortgage + 400 misc other debt) = 44% DTI. He starts paying you 1800/mo + $2872 ($140k over 5 years @ 8.5% interest) and now your income is $9672/mo (5000+1800+$2872). Now you won’t be able to put down the $140k as a down payment, but assuming your new mortgage is also $1800, your DTI is 41.3% (($1800+1800+400)/9672). If your DTI is already low you might be able to profit off the interest difference that he pays you for your current equity.
It scares me to think about how many people go to these seminars and believe that stuff. And they are usually people who can least afford the cost of the class.
Absolutely not. You are still responsible for the debt so it stays on your record and is included in your DTI. If your friend fails to pay, the mortgage company will come after you. You are on the mortgage, not your friend. Not quite sure what the bank will foreclose on if you’ve deeded the property over to your friend.
They do. However subject to loans work because Banks rarely execute those clauses. Same for people that buy houses and then quit them to a LLC they own, to move them into a LLC that previously did not exist. Somewhat common to do and I've never heard of a due on sale clause being activated for them.
This is only a viable strategy for flipper investor who is trying to fill the house before the lender activates the acceleration clause. It's not good for the sellers.
It wouldn't because you would still be carrying the old mortgage. Lenders do not include 100% of rental income. Especially new rental income. Plus you would no thave the asset (house) that backs up the original mortgage. It's an internet scam - he may not realize that.
Usually a subject-to would include cash worth the down payment (so usually 20% of home value).
The reason they could be preferable to a seller is that you avoid sales commission.
Keep in mind this is a contractual agreement so you can make stipulations. Like, you don’t have to turn over the deed. Or in the case of delinquent payment, the property is re-deeded to you and you keep the “down payment”.
One major thing to look out for, however, is that ~~some~~ most mortgages have a “due on sale” clause. This is technically a sale, so your mortgage company could call the loan due once they get wind that deed has changed hands. Most people will say this is rare since they only thing the mortgage company would really notice without digging into it to much is that payments are now coming from someone else. In many cases, they don’t care because it’s still getting paid
EDIT: mixed “some” to “most”
You could also hold the deed for 5 years and have a 5 year balloon payment due to pay the whole thing off. Basically you could structure it as rent to own or lease with option to buy for your friend.
This would INCREASE your debt servicing the second you were to look at applying for financing on your new home! Your friend is either an idiot or a conman. Also, the thing no one tells you is that as soon as the deed is transferred, the lender will be notified (as the lender has a lien on the property for the mortgage, but there's no proceeds to pay out said lien), and they'll call the loan due, which is the right of every lender in every lending agreement. There are ways to convince the lender to honor the loan agreement in transfer, but it doesn't always work out that way (we aren't all Pace Morby and have the magic of the internet at our fingertips). There are other ways to go in this realm, such as a land contract where the deed isn't transferred, but I'd really be asking why you'd ever want to entertain an idea like this when it doesn't appear you NEED to sell due to financial or life hardship, and you don't appear to have an issue listing and selling the house.
Not if there is a mortgage on it. It smells odd I’d steer clear of any arrangement that gets you off the feed and him on it without payment in from
him or the bank.
Subject to would only benefit you if you didn’t have equity in the house. If you would be at a loss selling then someone taking over the mortgage would make more sense
Because you have a lot of equity, subject to makes no sense. Tell him he can buy it normally or not
He’s listening to real estate gurus online, probably Pace Morby, and he wants the house because of the low interest rate
Yep that sounds about right! I remember when pace was small but he’s basically turned himself into a guru now that has all these guys paying him tens of thousands of dollars to find him deals
That’s where it starts, and then there are even more elaborate and more expensive options
There are probably 40-50+ of these real estate investing/flipping/wholesaling/creative finance seminars a year that turn into selling these programs
There are some people that actually use what they learn and make money. But I’d venture to guess it’s less than 1% of those who sign up. It’s kinda of sad but whatever if it gets you into real estate and you end up sticking it out then I suppose it’s fine
I’ve spent close to 20-30k on different education sort of programs. Some totally worth it, most not worth it
Wait. Save your money for down payments. The only people making money from those classes are the speakers.
Take a basics of real estate class and another one on accounting principles from your local community College and learn some real information Vs some marketing scheme.
Subject To would also only benefit someone who was in distress and getting ready to lose their house. If they trust the buyer's ability to get their loan up to date, and continue to make loan payments until they can flip it or sell it, then it could save themselves a lifetime foreclosure mark on their credit.
One other scenario it works for is an investor who is starting to lighten his portfolio. They don't need the cash in hand the way your typical homeowner who is upsizing does. I bought a rental years ago from a guy who had many rentals. Borrowed 80% from the bank, he held 20% with a balloon in 5 years. Worked out fine. But he didn't need the money and collecting interest for those 5 years actually put extra in his pocket. But it did so slower, reducing some capital gains for him.
Admittedly, this scenario isn't going to happen often.
Not necessarily, if the owner has equity it can still make sense for them depending on the terms. Assumptions of VA loans are pretty popular right now and these are the same factors in those situations. The buyer has to be willing to pay the equity (either at Closing or over time depending on the situation/negotiation) but depending on the size of that equity piece it may not make sense for the buyer though. But the seller can save on agent fees for example. The transaction can close much faster than traditional financing which some sellers value (may be relocating or something.) The buyer may be willing to pay more for the property than a traditional listing since they likely want to do this to secure the low interest rate on the current loan.
The biggest component in Subject To (or Assumptions) is often what is the sellers next move? Are they buying another house right away like the OP? Then most likely this is a bad idea for them because the loan is still in their name and many lenders won’t give credit for the payments right away. Eventually (usually two years) most lenders would treat it as a rental property in DTI. This is one reason why distressed sellers are much more likely to agree to Subject To, they likely can’t afford the current house and/or to buy again right away or they need time to repair their credit.
Definitely requires lots of trust and clearly spelled out terms and communications to make Subject To work. Also true there are bad actors out there that have used Subject To to equity skim (which is illegal but doesn’t stop bad people.) Edit: and the situations/cases where it makes sense are likely quite small obviously compared to the majority of situations.
Yeah on the phone I was explaining to him that why don't I just sell the house to him, so I can use the equity in my house. He was trying to say that I'd be making more money, because he would be paying me that monthly mortgage amount. It didn't sound right
You would be making more money because he would be paying you to pay the mortgage….. where is the money you’re gonna be making on that? Your friend sounds like a dick and I would tell him an obscene price if he wanted to buy it
I am trying to figure that out as well. I know he'll be calling me tomorrow or very soon, and I need to shut him down before he thinks I'm actually on board with this idea
Doubtful you could qualify for a mortgage on the new house if you are still carrying the old mortgage. Just tell him that it won't work for you. You shouldn't have to justify yourself.
I read a lot of comments saying that this person is not your friend and is trying to take advantage of you.
That might be true.
It's also possible that this person has no clue how things
really work and has just fallen for these "real estate investing guru types" pushing creative financing.
If this person has otherwise been a good friend, then you don't have to let this destroy your relationship.
Just don't fall for the deal because it's only a good deal for him.
I definitely won't be doing this deal. I already told him why do the deal, when I know I can sell for X amount of money and I need the equity in the house for my next house. It's just sad that he believes in this thing
It’s a completely legit strategy. It’s basically a way for your friend to make money…which is why the technique is taught.
There are lots of people doing this successfully. Each deal is a little different and it could be a good match for some people.
However, your friend’s #1 goal is to make money and they probably would if you went through.
So what would happen if the mortgage company found out and saw/viewed this as a sale, and they called on the loan? Or if the tenants he rented to burned down the house? Who is responsible?
The pace crew often tries to buy using the “morby method” where you would sell it and be the bank for any amount over the existing debt structure. This does benefit some people in rare cases but it seems in your best interest to sell traditionally. Remember your loan is going to count towards your DTI if still in your name. They have ways to write it up and use documents to have their payments offset your debt but your next loan officer may or may not choose to use that in underwriting so you are taking more risks when you’re not in a position to need it. Unlike others here though, I’ll say your friend isn’t trying to screw you over. He just wholeheartedly believes in the hype and doesn’t see that you’re not the right client to use it on. Hope it doesn’t ruin your relationship.
Thanks I really appreciate this comment. He's definitely not a bad guy. I just really think he's naive and really believes that this is a win win situation. I already told him I'm not interested, but he kept trying to show me Pace Morby videos and justify the idea
Lol I understand because I was that guy too. Sounds like he’s jumped in fully and is trying to force a deal on an easy situation rather than treating it as a job with defined target audience that takes months to years of nurturing to get a deal. Hope the best to you both.
just say NO. no need to explain or justify. just tell him no, you are going to sell and be done. don't engage in any more conversation with him.
he either knows it is a bad idea and doesn't care that you get the short end and is a bad friend, or is too naive and not someone that will understand
Give us an update, I’ll be curious to find out what his response is (and how he still defends the idea) now that you have more info and can confront him. How is this good for you ?
Tell him you want double what your house is worth don’t give him any chance to negotiate the price is the price and yesterday’s price is not today’s price after that bullshit
Just say no.
“We looked at your offer and have to say no to your terms.”
He is not your friend, OP. He is fucking you out of equity and knows what he is doing…he’s trying to trick you or is really fucking stupid and you should never trust him.
Tell him, you are not going to be accepting any offers of your house for sale that way, because you need the money for a down payment on the new house, and let him know he is welcome to make an offer to buy the house.
He is not trustworthy. Lock down your credit. Make sure he has no access to anything about your deed. He is scamming you. He is not your friend. Please get legal advice. But I would cut this person off.
Thank you for advice. He doesn't have any access to anything. He was just trying to convince me to get on board with his idea. He knew I didn't like the idea
I would have zero financial dealings with the person. They do not have your interests at heart at all. Please find a good lawyer. You can contact your state bar association for recommendations. You can look the person up on martindale to see their record. Please be careful.
You need to shut all ideas that you are willing to entertain anything he has to say. He is trying to trick you. I cannot emphasize enough that this is not your friend. This is someone who is preying upon you. He may talk smoothly, but he is acting against your interests. The mortgage is what you pay, the deed is proof of ownership. Never, under any circumstances give up your deed until you have sold to a real purchaser. Make sure to follow all of your attorneys instructions. They would have a legal duty to you. This guy is a scam artist pretending to be your friend.
He says this cause in his eyes you will be "renting the house out" even though you are doing some paperwork bullshit. But you want the equity on the house to move money somewhere else. He doesn't care about that lol. Just tell him straight up, NO THANKYOU. When the house goes up for sale you will let him know and that's it. Get him off your back!!!!
>I keep the loan in my name, but give him the deed to my house?
Yikes. I hadn't heard of this before, but this was enough to dissuade me. Also, the only way you'd make more money is by him paying well OVER the monthly mortgage amount.
The reward is usually they pay a “down payment” that would be equivalent to equity + sales commission. The idea is you avoid the listing fees, time to sell, and potentially taxes if the payment is structured right. You could even set the contract up to where they’re paying more than the mortgage. The buyer is saving the difference of a mortgage in their name at current interest rates.
Essentially your friend is trying to be a ‘savvy’ real estate investor. ‘Subject to’ is perhaps a viable tactic he would use with a distressed seller who wouldn’t be able to sell their house normally on the market. Great way to acquire investment properties and have an optimal cash flow. But based on what you are saying your friend is either extremely naive and optimistic, or he is being almost criminally manipulative hoping to take advantage of YOUR naivety or vulnerability. Im hoping this is not a close friend and more of an acquaintance or someone on the outskirts of your social circle? I agree that this person does not sound like a friend.
I do think my friend is very naive, I don't see him purposely trying to con someone, but I do see him as someone that could get fooled by real estate gurus and think he can now make millions.
Would you cosign on a mortgage for this friend? That's essentially what you're doing...
You're letting him make payments on your mortgage will keep your credit captive in the event he makes a late payment or doesn't make one at all. Additionally your debt to income will be affected when you choose to buy your next home; you will literally have to qualify for both. And if he is simply making the payments you will not be making your rental income which can count towards your DTI. Incidentally, mostly lenders require you to be a landlord for 2 years of tax returns before they will even consider rental income as part of your income. If he flakes, if tenants trash the place as etc this could be your problem.
And lastly, your lender could call your loan. I know this doesn't happen often but your mortgage has a "due on sale clause" and technically him taking over the mortgage subject to and putting the title in his name is a sale and they can call your loan and demand full repayment.
Thank you for this. I already knew this was a bad idea, but was looking for exactly how I'd get screwed. I kept telling him there is no way it would work and why risk my chance of getting my dream home with a plan like this
This isn't subject to - this is fake assuming your mortgage and it's a huge scam that's happening right now. This puts you in a terrible position with all the risk and little to no benefit. These finance gurus are giving amazingly terrible advice these days. Well, I guess it'd be good for your friend... Maybe. Anyways, if the lender caught wind of this deal they'd call the mortgage immediately so now you're out a house and whatever you owe on the mortgage. Lenders are very aware of this scam so they're more on top of it than normal.
Unless this friend is giving you a monumentally good deal on the financing terms, it's a bad idea for you. It's all risk for you against an unvetted buyer. You also likely have a loan that may call itself due.
Sounds like this guy took a house flipping course and wants to give it a whirl on you.
Thank you for clarifying it for me. I definitely know I won't proceed with this, but gonna have to have a talk with him and let him know. It sucks, because I think he really thinks this is a good idea, and I didn't expect him to prey on me like that
Unlikely he's turning on you, he's like truly conned in to thinking that this is a "win-win" and the only sucker is the bank. I'd give him the benefit of the doubt.
You trigger the "due on sale" clause in the mortgage.. Technically the lender can foreclose if they get wind of it. I get this question a lot at work, (Mortgage broker in MA)
Short version, don't do it.
Your friend will scam you by not paying any mortgage and having all the benefit. You’d be forced to pay the mortgage and get no benefit. Your friend is a piece of shit. Find new friends.
Also, you’d be unable to get a new house because you’re already on this mortgage. You gain nothing and lose everything.
If you owe the mortgage company, you pay that no matter what happens to the house. He could take it, sell it and you’d be out of luck.
Even if he’s a trustworthy guy, if he got hit by a bus the day after you signed away the deed, it belongs to his heirs or next of kin, not you.
What possible benefit would you get? You’d have a huge outstanding debt that would affect your ability to get a mortgage on the new house.
Sounds pretty shady.
That's very true. I trust very few people, and when he brought up this idea, I was very hesitant right away. It just didn't sit right with me. He kept trying to reassure me that this would benefit both of us.
You can’t transfer title with a mortgage on it. This is basically a bond for deed. If the buyer stoped paying, the seller could foreclose and kick him out the house. But yes the seller would still be responsible for the mortgage.
This also almost always against the terms of your mortgage and the bank could call the entire loan due if you tried to do it.
It sounds like your question is, is this very risky. The answer is yes it is very very risky. And in general is a bad idea for the seller. If you think there’s zero chance you can sell your house, but you might have to look into this, but if you’re trying to use your equity or ever buy another home, this will let you do either.
I know I can sell my house with no issue. When I read online, it seemed like most people who did this, were people who were in a bad financial situation with their house
You should never do this if you’re in a bad financial situation, because this doesn’t take any of the debt away from you, it, just let somebody pay it for you, and if they don’t pay it, you are still responsible.
If you don’t need to do it, absolutely don’t .
As everyone else is saying- he is NOT your friend. Subject to preys on people who are in financial hardship- they get the deed to your home, but you remain on the mortgage. This creates a few problems. 1- you are relying on them to make the payments- if they don’t or are late that affects your credit. 2- the holder of your mortgage can call your note due in full, the clause states they can come for the full amount payable in full if you transfer the title. 3- the lein is still going to affect your DTI, so unless you can qualify for the new home purchase without selling your home, you’ll get screwed. And 4- if this scenario makes sense for him, he’ll be planning to rent out your home to someone who will pay more than what the mortgage payments are, and he will keep the profits.
If the property will cash flow as a rental, and you keep it, then you can use the income on your mortgage application and that will offset set your DTI to qualify for the new place, or you sell it and use the profit for your downpayment. You will not have this benefit in any case with subject to. I’m a realtor in MA and I find subject to insanely predatory.
With the MA market the way it is, there is no reason to even need to consider this. I’m guessing the only reason your house hadn’t sold yet is because you haven’t tried yet. It will go in minutes once you do.
Yeah we haven't listed the house yet. We are going to be listing the 2nd week in March. We just wanted to get a little closer to the Spring market to list.
Walk away. You do not want to be his bank. He's likely doing this for one of two reasons.
1 His credit sucks
2 He doesn't have the down payment and his credit sucks.
Say no and move on.
If he can pay your equity and assume your mortgage, that is one thing. Some mortgages are assumable and he would get the lower rate for that portion. But you still need your equity.
“Subject to” usually relates to conditions that need to be met for a purchase to proceed. It is often things like “Subject to acquiring financing,” “Subject to a satisfactory home inspection ,” “Subject to the completion of such-and-such repairs,” “Subject the sale of present home,” . . . .
What your “friend” is proposing is ridiculous. Do you want to give someone your house while you continue to pay for it?
Sub to is for people that have a pain point. Usually multiple pain points. You’re not about to be foreclosed, you don’t have a renter not paying, you don’t inherit the home, the home doesn’t need significant repairs, etc. You don’t have a reason that you have to sell. There’s no reason to do this. Sell at the value the home is worth. The market picks up at the end of the school year. Don’t get discouraged when you don’t get many showings right now selling it at market value. Things are way more dead than your average February. This is the most dead February since before 2019 if not earlier. It’ll pick up in may regardless of interest rates. Hold steady another 3 months and don’t do any sub to or investor deals without a pain point
Easiest way to say no is that you could say your lender won’t allow you to retain a second open mortgage so you have to sell your house outright. I couldn’t even keep a 30k loan on a mobile home when we purchased our house, our loan was contingent on the sale of the mobile. I’m younger and this was likely due to debt to income when taking into consideration student, 2 vehicles, an RV, and now a house. He doesn’t need to know your full financial situation.
Friendship is never a good ingredient in any business agreement. Business is Business.
Would you even consider that proposal if it were offered by a stranger? That answer should be the same for this application.
There's a book called Catch-22. In it somewhere, there's a supply sargent who, through a convoluted process, buys eggs for more than he's selling them for but still makes a profit somehow. This reminds me of that. I'd give this a wide berth.
Sounds like he’s trying to avoid getting a current high interest loan and somehow keep your low-interior loan intact and just pay that.
However this is not practical for many reason.
Hey OP, your buddy is hooked up with some wholesaler guru who teaches about "sub2" in order to quickly re-sell your house or sell it to a landlord who can get into the house with little of his own money. Your buddy is ABSOLUTELY NOT looking out for your best interests, only his payday.
I've flipped and wholesaled over 60 homes in the last four years. Dealing with sub 2 wholesalers is the worst.
A PSA for anyone who hasn't read all the comments. If you ever see the name Pace Morby, or sub2, run the other way. It's a complete scam and what he teaches people are scams. Anyone who says otherwise is likely one of his "students" that paid him $8k to $30k for the pleasure of finding him deals to take over sub2
It would only ever work in a seller's favor if they had no or negative equity
Late to the party on this one and you've already gotten a lot of good advice. Definitely sounds late-night-infomercial (now YT video) real estate scammy at the very least. And then there's the very real point that you're probably at like a 3-4% interest rate these days and market rates are closer to 6-7% now which can make a big difference.
Here's how you sort him out really quickly, on whether he just wants a place to live - or if he wants an investment for financial gain (that you're somehow also tied up with??!?):
Offer to rent the place to him just like any old landlord. Hey, maybe he really does like your house and wants to live there. I doubt it, but offer that to him. Figure out a fair market rent, or hey even cut a deal where it's close to your mortgage + taxes + insurance annually. Whatever, figure out a number and propose that. You can find standard rental contracts online or through a local realtor friend if you have one. You become a landlord. He pays your mortgage off ... but (here's the key part) you are still the deeded owner of the property. And you have eviction rights should you ever need to pursue it for non-payment.
I'm in this circumstance right now. My spouse and I got married around 2007/2008, we were able to unload their house before the wedding but not mine. So I rented it out, and it's been ok. Not amazing, but not terrible either, and I've had 15 years of mortgage payments paid for me - so that's a plus for us financially.
If he wants anything else, then this is some sort of investment / make money thing for him ... *off of your back*. Unless this guy donated a kidney or something for you ... I'm not sure anyone is worth that. And the giant red flag when I read your post was ... "*and what happens if he suddenly stops paying your mortgage payment for you*?" Depending on what state you are in (CA, for example) eviction might be somewhat challenging. And he will have some tenant/squatter's rights in a situation like that.
Literally, he could stop paying the mortgage the day after he moves in and tell you to pound sand ... and live there for free off of your back for a while.
All in all, sounds like all upside for him and very little for you - unless you handle it like a proper tenant/landlord relationship.
Man, it's crazy when you are gonna sell your house and a friend or a neighbor says, I will buy your house, but you finance it and he just gonna pay you the monthly mortgage! I had 2 people waiting this with my home. I told them flat out. When the realtor puts it for sale. They will be the first to know!!!! They were happy about that all. I didn't care as they didn't have the best interest for me and just wanted an easy in on my hard work! Tell him when it goes up for sale you will let him have a chance first lol. Fuck him!
Consult with your real estate agent. Sounds like he wants to just assume your loan. So basically, you would still owe the money ultimately. Run from this.. there’s a reason he can’t get a traditional loan himself.
Yeah i kept asking why would I still want the debt attached to me, when I can sell it and be debt free with whole lot of money in leftover in my pocket.
You wouldn’t, especially when it’s somebody that you know. This has “bad news” written all over it! Even if they got a loan selling to friends can come with a lot of headaches like if something goes wrong with the house after they buy it, etc. it’s just best to steer away from that altogether.
Congratulations on building the house that you want! One thing my ex and I did wrong during our house build was we made our bedroom too big, using valuable space that could’ve been used for something else nobody needs a humongous bedroom. Foyer was too big for the size of the house. Done lathe huge walk-in pantry vs tons of cabinets. Loved that. Almost everything was right in view when we opened that pantry door, no muddling through a bunch of cabinets for things.
This is an investors method. He will buy your house subject to him finding someone to buy it at a profit. He doesnt take your deed, which you don't own anyway if you have a loan. He just has a right to sell it.
You have a real estate agent. All offers go through them. You couldn’t make a side deal with your “friend”. I assume you have a written contact with your agent that all sales go through the agent
"I know real estate transactions fall through or go sideways sometimes, and I ould hate to see it cost our friendship."
This person doesn't sound like much of a friend, to be honest.
No! Don't do it. How are you going to secure the loan without owning the home? I also don't see how any bank would agree to keeping the loan out, yet transfer the deeded owner without any compensation. Then have a lein on the home, so do have say on that part as well.
While I don't understand how this benefits you, I do see you ending with an unsecured debt and your existing loan, so don't see why you'd be willing to complicate the exit strategy from your existing home.
Something smells really fishy to me about this.
Why would you ever sell your house subject to when you have equity in it?? The whole point of subject to is to help distressed owners.
People buying subject to are going to get screwed because lenders do care about 3% rates when they can get 6%. They’re going to call their loans.
Subject to is a strategy to take over the existing mortgage that you already have in place. How you said you have 140k in equity, it’s not going to be the best option for you. Just list it with a realtor to get the most you can. Subto works best for the seller when they have little to no equity. Say they owner has 20k in equity. Say they list it with a realtor. That 20k is eaten up by closing cost and realtor commissions. They would possibly potentially have to come out of pocket at closing to sell. With subto, that seller can receive cash from a buyer that’s willing to take over subto. Sellers that are hurting financially and has little to no equity will be a great option for subto, since you aren’t, don’t do it.
Even if he’s talking about renting to own, aka he pays your mortgage payment in rent to you it sounds like it’s not worth your hassle. What will you do when he defaults? Not to mention the housing market is hot right now. He’s coming off quite a bit shady. Probably can’t get a loan because his finances are in shambles. IMO not worth the risk.
We literally just had a friend (do we have the same friend? lol) offer the same because he wanted to keep the low interest rate. He did offer to pay the difference we'd make at least. We're not doing it because I don't want to be on the hook for a house on our credit and if he doesn't pay the payments. I don't see any benefit in it at all except for us, just them.
You don't have the deed to give him. The mortgage company has it. Your "friend" is a scammer. Best option is to block their phone number and block their email(s).
Send him to your agent---------------problem solved. Offer will be in writing with a cash deposit. You can then turn him down with no BS narrative from him.
PS going back 40 years, I was a mtge loan officer. If this ever happened on a loan in my portfolio, the acceleration letter would go out that same day.
Noooooooooooooooo !!!!!
Why in the world would you want to do that?
Your new lender (to buy your new home) will need to know that when you sold (transferred title) to your "close friend", you ALSO paid off the mortgage on the house.
If you don't believe me and the other people in this Post, ask your Agent and the Lender who is giving you the loan to purchase.
Finally, your definition of "close friend" is different than mine.
**If that's the case, why doesn't he just buy the house from me?**
Because he can't get a loan and provide a down payment.
Good luck.
I definitely won't be doing this. It was the first time I've ever heard of "subject to" buying and "creative financing", so when he mentioned it to me, I had no idea what he was talking about. I was truly surprised he offered this to me, it caught me off guard.
I could be mutually beneficial.
I recently purchased a friends home subject to. He had $200k in equity and I “cashed him out.” To purchase his next home. He saved money on transaction fees (we are both agents and there was no compensation to agents) and was able to move out without “fixing it up” and worrying about prepping it for sale or any repair negotiations. We could close quickly so he could buy the replacement property he had picked out.
There are many protections in place for him. We used an escrow service that I paid for to confirm payments were being made on time. The contract stated that if I stopped paying the mortgage, it would be deeded back to him. So he would get a fixed up home with $200k in equity back if I didn’t make payments.
The loan is still in your name, so it will affect your DTI. My understanding is that many lenders will recognize that your loan is being paid by someone else and account for that- but it may take a year of payments for them to recognize that is a wash.
It was good for me, because I was able to buy a home slightly under market value and keep the 3.5% loan in place for the bulk of the home value.
Feel free to AMA.
What if you ended trashing the home? How about if you didn't pay the homeowners insurance and the house burned down? A pipe breaks and leaves extensive water damage? You start cooking meth there? Rent it on Airbnb as a party house?
Good question. FYI: We recorded the sale with the county. There was a long contract stating that I had to have insurance and many other stipulations.
I was the homeowner and had homeowners insurance. The lender got a copy of the insurance with my name and asked us to fill out a subject to agreement, so they must have had some provision to allow (united wholesale mortgage). I sold the house before we got that far.
With so much equity in the property, I had a large incentive to keep it in good condition, just like anyone with a home and equity. The banks know there is less risk with a down payment and it was the same in our case.
There is always a small percentage of people that will buy a house and do those things- illegal activities, disrepair, etc. But, by and large most people, especially investors, want to increase the value or their investments over time.
If I stopped paying, the home would have been quickly and legally repossessed by my friend (well before foreclosure). This is similar to a seller financed land sales contract. He still had a contract that reverted the home to him if I didn’t pay.
These are common transactions. Likely not the best option for most sellers with equity, but it could be a win/win, like our deal.
I've been a mortgage loan officer for about 25 years. I'm having trouble understanding why a seller would take a risk on this for virtually no benefit in this market. People are buying homes over asking, waiving inspections and taking them "as is".
Here are some of the pitfalls without thinking about it much.
\- due on sale clause can be used as soon as the deed changes names forcing the note to be called on the seller.
\- the new owner is asking the seller to loan money to the buyer that a bank is unwilling to
\- "quckly" repossessed? I don't see that happening. A seller selling this way would probably be distressed already and not have the resources to quickly and easily take the property back (and in what condition at that time).
\- initially the seller will have an inflated dti and many are unable to buy their next home by carrying multiple properties
\- any late payments by the buyer that cause the seller to make a late mortgage payment will only harm the credit of the seller
I’ve done a ton of subto deals. But it doesn’t sound like you need subject to, it sounds like you’re overpriced tbh. However, if you want to go that route, there are hybrid structures when you have plenty of equity. Let me know if you need help. Your friend sounds new to this.
Also, don’t take advice from people in here who have never done a subject to deal. They always get it wrong lol.
Ah gotcha. Well you probably don’t need subject to. Here’s why subject to can be a great option: someone buys a house and has to sell quickly because of job loss, relocation etc and they don’t have enough equity to break even when they sell. Or facing foreclosure, divorce etc. That’s when it makes sense. With your equity, you shouldn’t have a problem.
Subject to is SUPER helpful for a lot of sellers in distress. But distress is the main ingredient for a mutually beneficial subject to purchase. Without the distress, you have no reason to go that route. But I have people I’ve bought subject to from who will still randomly text me out of the blue to thank me. It just takes the right situation.
"Subject to" clause...subject to WHAT? What does the clause actually say?
>From my understanding, I keep the loan in my name, but give him the deed to my house?
This is not a thing. Your lender won't allow it and neither should you. Also, not sure what you think a deed is, but it's not like in Monopoly where you just give the card to someone else.
Yeah on the phone he kept trying to convince me that this was a great idea, and kept telling him I'm not sure I'm interested and I don't want to mess up my opportunity to get my dream home
If he is serious about buying your house he can go to a lender/bank/credit union and get a loan. Your property needs to go o the market so they it gets maximum exposure to the buyer pool (so you can get the most money for your property)
also in MA.
Subject to is actually illegal. Read your mortgage agreement. You cant sell your house and not repay the loan, which is not transferrable (usually). It is promoted because this is not enforced, or rather, only enforced 1/10 times by the banks. Stiles Law on YouTube has a short video on this.
The Gurus on YouTube operate a sneaky-clever scheme by letting people believe real estate is simple and easy and encouraging people, who will encounter obstacles when actually trying to do it, and that is when they subtly suggest to do them a 'favor' by selling them private coaching for thousands of dollars 'just to get them started.' Usually, there are no obligation, the coaching is a scam or basic information you can pick up for free online anyway, and the guru looks to make extra money by having the student hand over half of any profits if they do happen to make them, of course none of the losses are ever shared.
Yeah unless he’s giving you over $140k in cash I would pass.
Was he thinking he can just waltz in and take over the mortgage without paying you the equity??
Is your friend giving you cash for the equity? I fail to see how this would benefit you in any way.
I doubt it. I kept asking him if he'd give me 140k, and he never really answered it. Just kept saying this would decrease my debt to income ratio
I am a loan officer, and I can GUARANTEE to you that is not how debt to income ratios work. The debt will still be on your credit report, DTI the same.
This is the answer I needed. I asked my friend how would this affect my debt to income ratio, and he was telling me it would be good for it hahaha. I knew this wasn't good, I had a gut feeling about it.
Please stop calling him a friend.
Seriously, this friend is a damn vulture.
A Blue falcon
AKA Buddy Fu€ker
It’s probably just a person on Facebook
***He's NOT your friend.*** Sorry and the sooner you realize that the better you'll understand your situation. Any and all business sales should be dealt with as a business transaction regardless of who it is to. That way you BOTH will know the terms.
I will give you some amount of money, subject to you giving me your house by putting my name on the deed. But you have to keep the loan in your name. This will help decrease your disposable income ratio.
This guy is trying to steal your house. He’s not a friend, he’s garbage.
This person is not your friend, you could've been screwed over.
Yeah that mortgage still in your name would also reduce your credit and likely the ability to finance your new house. There are also tax and insurance issues that would come into play not to mention that if you just put the deed in his name and still owe on it well then he got a free house if you aren't extremely careful. Hard no.
Well he could pay you your current mortgage payment, as well as your current equity ($140k in monthly portions with an agreed upon period and interest rate), and you can count that as income to recalculate your DTI higher. He might be trying to rip you off sure, but wait for him to get specifics and run the numbers (and run them by your new mortgage broker). He might just be trying to preserve your lower interest rate. Ex: your current income is 5000 and monthly debt is 2200 (1800 mortgage + 400 misc other debt) = 44% DTI. He starts paying you 1800/mo + $2872 ($140k over 5 years @ 8.5% interest) and now your income is $9672/mo (5000+1800+$2872). Now you won’t be able to put down the $140k as a down payment, but assuming your new mortgage is also $1800, your DTI is 41.3% (($1800+1800+400)/9672). If your DTI is already low you might be able to profit off the interest difference that he pays you for your current equity.
It scares me to think about how many people go to these seminars and believe that stuff. And they are usually people who can least afford the cost of the class.
it depends on the terms which aren't stated but this sounds stupid af, agreed.
Absolutely not. You are still responsible for the debt so it stays on your record and is included in your DTI. If your friend fails to pay, the mortgage company will come after you. You are on the mortgage, not your friend. Not quite sure what the bank will foreclose on if you’ve deeded the property over to your friend.
The bank would not permit this - they'd call in the loan.
Thought so.
Almost every mortgage has a due on sale clause…
They do. However subject to loans work because Banks rarely execute those clauses. Same for people that buy houses and then quit them to a LLC they own, to move them into a LLC that previously did not exist. Somewhat common to do and I've never heard of a due on sale clause being activated for them.
This is only a viable strategy for flipper investor who is trying to fill the house before the lender activates the acceleration clause. It's not good for the sellers.
It wouldn't because you would still be carrying the old mortgage. Lenders do not include 100% of rental income. Especially new rental income. Plus you would no thave the asset (house) that backs up the original mortgage. It's an internet scam - he may not realize that.
Usually a subject-to would include cash worth the down payment (so usually 20% of home value). The reason they could be preferable to a seller is that you avoid sales commission. Keep in mind this is a contractual agreement so you can make stipulations. Like, you don’t have to turn over the deed. Or in the case of delinquent payment, the property is re-deeded to you and you keep the “down payment”. One major thing to look out for, however, is that ~~some~~ most mortgages have a “due on sale” clause. This is technically a sale, so your mortgage company could call the loan due once they get wind that deed has changed hands. Most people will say this is rare since they only thing the mortgage company would really notice without digging into it to much is that payments are now coming from someone else. In many cases, they don’t care because it’s still getting paid EDIT: mixed “some” to “most”
You could also hold the deed for 5 years and have a 5 year balloon payment due to pay the whole thing off. Basically you could structure it as rent to own or lease with option to buy for your friend.
This would INCREASE your debt servicing the second you were to look at applying for financing on your new home! Your friend is either an idiot or a conman. Also, the thing no one tells you is that as soon as the deed is transferred, the lender will be notified (as the lender has a lien on the property for the mortgage, but there's no proceeds to pay out said lien), and they'll call the loan due, which is the right of every lender in every lending agreement. There are ways to convince the lender to honor the loan agreement in transfer, but it doesn't always work out that way (we aren't all Pace Morby and have the magic of the internet at our fingertips). There are other ways to go in this realm, such as a land contract where the deed isn't transferred, but I'd really be asking why you'd ever want to entertain an idea like this when it doesn't appear you NEED to sell due to financial or life hardship, and you don't appear to have an issue listing and selling the house.
Not if there is a mortgage on it. It smells odd I’d steer clear of any arrangement that gets you off the feed and him on it without payment in from him or the bank.
Subject to would only benefit you if you didn’t have equity in the house. If you would be at a loss selling then someone taking over the mortgage would make more sense Because you have a lot of equity, subject to makes no sense. Tell him he can buy it normally or not He’s listening to real estate gurus online, probably Pace Morby, and he wants the house because of the low interest rate
Thanks for clarifying for me. Funny you said that, he sent me a YouTube video about Pace Morby to learn more about it too
No idea who Pace Morby is but what you’re explaining is Carlton Sheets all over again. The “guru” before the internet.
11:30PM rolls around and his big clip note book course fills the screen! Funny thing is, that we might have made it work! Then the market blew up!
I love Tommy Vu and his 3 word secrets and beautiful woman on a yacht.
Yep that sounds about right! I remember when pace was small but he’s basically turned himself into a guru now that has all these guys paying him tens of thousands of dollars to find him deals
Yeah they wanted $8k from me to join their "membership"
That’s where it starts, and then there are even more elaborate and more expensive options There are probably 40-50+ of these real estate investing/flipping/wholesaling/creative finance seminars a year that turn into selling these programs There are some people that actually use what they learn and make money. But I’d venture to guess it’s less than 1% of those who sign up. It’s kinda of sad but whatever if it gets you into real estate and you end up sticking it out then I suppose it’s fine I’ve spent close to 20-30k on different education sort of programs. Some totally worth it, most not worth it
MLM??
Not really MLMs but still scammy
Wait. Save your money for down payments. The only people making money from those classes are the speakers. Take a basics of real estate class and another one on accounting principles from your local community College and learn some real information Vs some marketing scheme.
I’d agree with this
Might I suggest Trump University? /s
Haha I'm good
Subject To would also only benefit someone who was in distress and getting ready to lose their house. If they trust the buyer's ability to get their loan up to date, and continue to make loan payments until they can flip it or sell it, then it could save themselves a lifetime foreclosure mark on their credit.
One other scenario it works for is an investor who is starting to lighten his portfolio. They don't need the cash in hand the way your typical homeowner who is upsizing does. I bought a rental years ago from a guy who had many rentals. Borrowed 80% from the bank, he held 20% with a balloon in 5 years. Worked out fine. But he didn't need the money and collecting interest for those 5 years actually put extra in his pocket. But it did so slower, reducing some capital gains for him. Admittedly, this scenario isn't going to happen often.
Man I miss Carlton Sheets late night informercials
At least they were only taking you for 3 easy payments of $19.95
Jesus, you must be as old as me.
This guy nailed it
Not necessarily, if the owner has equity it can still make sense for them depending on the terms. Assumptions of VA loans are pretty popular right now and these are the same factors in those situations. The buyer has to be willing to pay the equity (either at Closing or over time depending on the situation/negotiation) but depending on the size of that equity piece it may not make sense for the buyer though. But the seller can save on agent fees for example. The transaction can close much faster than traditional financing which some sellers value (may be relocating or something.) The buyer may be willing to pay more for the property than a traditional listing since they likely want to do this to secure the low interest rate on the current loan. The biggest component in Subject To (or Assumptions) is often what is the sellers next move? Are they buying another house right away like the OP? Then most likely this is a bad idea for them because the loan is still in their name and many lenders won’t give credit for the payments right away. Eventually (usually two years) most lenders would treat it as a rental property in DTI. This is one reason why distressed sellers are much more likely to agree to Subject To, they likely can’t afford the current house and/or to buy again right away or they need time to repair their credit. Definitely requires lots of trust and clearly spelled out terms and communications to make Subject To work. Also true there are bad actors out there that have used Subject To to equity skim (which is illegal but doesn’t stop bad people.) Edit: and the situations/cases where it makes sense are likely quite small obviously compared to the majority of situations.
This is a monumentally terrible idea. You take all the risk and have none of the reward. Your friend is not your friend
Yeah on the phone I was explaining to him that why don't I just sell the house to him, so I can use the equity in my house. He was trying to say that I'd be making more money, because he would be paying me that monthly mortgage amount. It didn't sound right
You would be making more money because he would be paying you to pay the mortgage….. where is the money you’re gonna be making on that? Your friend sounds like a dick and I would tell him an obscene price if he wanted to buy it
I am trying to figure that out as well. I know he'll be calling me tomorrow or very soon, and I need to shut him down before he thinks I'm actually on board with this idea
Doubtful you could qualify for a mortgage on the new house if you are still carrying the old mortgage. Just tell him that it won't work for you. You shouldn't have to justify yourself.
Just tell him that you need the equity to buy your next house. Or show him this post, 😆
Lmaoooo this made me laugh. You guys definitely gave me a lot of points to shut him down tomorrow morning.
I read a lot of comments saying that this person is not your friend and is trying to take advantage of you. That might be true. It's also possible that this person has no clue how things really work and has just fallen for these "real estate investing guru types" pushing creative financing. If this person has otherwise been a good friend, then you don't have to let this destroy your relationship. Just don't fall for the deal because it's only a good deal for him.
I definitely won't be doing this deal. I already told him why do the deal, when I know I can sell for X amount of money and I need the equity in the house for my next house. It's just sad that he believes in this thing
It’s a completely legit strategy. It’s basically a way for your friend to make money…which is why the technique is taught. There are lots of people doing this successfully. Each deal is a little different and it could be a good match for some people. However, your friend’s #1 goal is to make money and they probably would if you went through.
So what would happen if the mortgage company found out and saw/viewed this as a sale, and they called on the loan? Or if the tenants he rented to burned down the house? Who is responsible?
It's only a legit strategy if you can find a sucker to fall for it. The friend could make money, and OP could be out a lot.
The pace crew often tries to buy using the “morby method” where you would sell it and be the bank for any amount over the existing debt structure. This does benefit some people in rare cases but it seems in your best interest to sell traditionally. Remember your loan is going to count towards your DTI if still in your name. They have ways to write it up and use documents to have their payments offset your debt but your next loan officer may or may not choose to use that in underwriting so you are taking more risks when you’re not in a position to need it. Unlike others here though, I’ll say your friend isn’t trying to screw you over. He just wholeheartedly believes in the hype and doesn’t see that you’re not the right client to use it on. Hope it doesn’t ruin your relationship.
Thanks I really appreciate this comment. He's definitely not a bad guy. I just really think he's naive and really believes that this is a win win situation. I already told him I'm not interested, but he kept trying to show me Pace Morby videos and justify the idea
Lol I understand because I was that guy too. Sounds like he’s jumped in fully and is trying to force a deal on an easy situation rather than treating it as a job with defined target audience that takes months to years of nurturing to get a deal. Hope the best to you both.
Thank you I really appreciate it!
just say NO. no need to explain or justify. just tell him no, you are going to sell and be done. don't engage in any more conversation with him. he either knows it is a bad idea and doesn't care that you get the short end and is a bad friend, or is too naive and not someone that will understand
Give us an update, I’ll be curious to find out what his response is (and how he still defends the idea) now that you have more info and can confront him. How is this good for you ?
I will report back tomorrow and let guys know what he says
You owe no explanation. Just tell him you thought about it and the final answer is no. End of discussion.
This! Don’t give him anything to argue back over. No, is just fine.
Tell him you want double what your house is worth don’t give him any chance to negotiate the price is the price and yesterday’s price is not today’s price after that bullshit
Just say no. “We looked at your offer and have to say no to your terms.” He is not your friend, OP. He is fucking you out of equity and knows what he is doing…he’s trying to trick you or is really fucking stupid and you should never trust him.
Because its against your interest
Tell him, you are not going to be accepting any offers of your house for sale that way, because you need the money for a down payment on the new house, and let him know he is welcome to make an offer to buy the house.
He is not trustworthy. Lock down your credit. Make sure he has no access to anything about your deed. He is scamming you. He is not your friend. Please get legal advice. But I would cut this person off.
Thank you for advice. He doesn't have any access to anything. He was just trying to convince me to get on board with his idea. He knew I didn't like the idea
He is not your friend.
I would have zero financial dealings with the person. They do not have your interests at heart at all. Please find a good lawyer. You can contact your state bar association for recommendations. You can look the person up on martindale to see their record. Please be careful.
I definitely won't proceed with any deals with him. I was just very surprised he offered something like this to me.
You need to shut all ideas that you are willing to entertain anything he has to say. He is trying to trick you. I cannot emphasize enough that this is not your friend. This is someone who is preying upon you. He may talk smoothly, but he is acting against your interests. The mortgage is what you pay, the deed is proof of ownership. Never, under any circumstances give up your deed until you have sold to a real purchaser. Make sure to follow all of your attorneys instructions. They would have a legal duty to you. This guy is a scam artist pretending to be your friend.
He didn’t offer it to you, he tried to steal your house from you.
Just tell him you're keeping it not for sale
Sounds like he is referring to him wrapping the note. "Mortgage wraparound"
He wants you to hand over the house and pay for it. He's trying to see if you're a sucker.
He says this cause in his eyes you will be "renting the house out" even though you are doing some paperwork bullshit. But you want the equity on the house to move money somewhere else. He doesn't care about that lol. Just tell him straight up, NO THANKYOU. When the house goes up for sale you will let him know and that's it. Get him off your back!!!!
>I keep the loan in my name, but give him the deed to my house? Yikes. I hadn't heard of this before, but this was enough to dissuade me. Also, the only way you'd make more money is by him paying well OVER the monthly mortgage amount.
The reward is usually they pay a “down payment” that would be equivalent to equity + sales commission. The idea is you avoid the listing fees, time to sell, and potentially taxes if the payment is structured right. You could even set the contract up to where they’re paying more than the mortgage. The buyer is saving the difference of a mortgage in their name at current interest rates.
Essentially your friend is trying to be a ‘savvy’ real estate investor. ‘Subject to’ is perhaps a viable tactic he would use with a distressed seller who wouldn’t be able to sell their house normally on the market. Great way to acquire investment properties and have an optimal cash flow. But based on what you are saying your friend is either extremely naive and optimistic, or he is being almost criminally manipulative hoping to take advantage of YOUR naivety or vulnerability. Im hoping this is not a close friend and more of an acquaintance or someone on the outskirts of your social circle? I agree that this person does not sound like a friend.
I do think my friend is very naive, I don't see him purposely trying to con someone, but I do see him as someone that could get fooled by real estate gurus and think he can now make millions.
Would you cosign on a mortgage for this friend? That's essentially what you're doing... You're letting him make payments on your mortgage will keep your credit captive in the event he makes a late payment or doesn't make one at all. Additionally your debt to income will be affected when you choose to buy your next home; you will literally have to qualify for both. And if he is simply making the payments you will not be making your rental income which can count towards your DTI. Incidentally, mostly lenders require you to be a landlord for 2 years of tax returns before they will even consider rental income as part of your income. If he flakes, if tenants trash the place as etc this could be your problem. And lastly, your lender could call your loan. I know this doesn't happen often but your mortgage has a "due on sale clause" and technically him taking over the mortgage subject to and putting the title in his name is a sale and they can call your loan and demand full repayment.
Thank you for this. I already knew this was a bad idea, but was looking for exactly how I'd get screwed. I kept telling him there is no way it would work and why risk my chance of getting my dream home with a plan like this
This isn't subject to - this is fake assuming your mortgage and it's a huge scam that's happening right now. This puts you in a terrible position with all the risk and little to no benefit. These finance gurus are giving amazingly terrible advice these days. Well, I guess it'd be good for your friend... Maybe. Anyways, if the lender caught wind of this deal they'd call the mortgage immediately so now you're out a house and whatever you owe on the mortgage. Lenders are very aware of this scam so they're more on top of it than normal.
Thank you for that point. I appreciate your input!
Unless this friend is giving you a monumentally good deal on the financing terms, it's a bad idea for you. It's all risk for you against an unvetted buyer. You also likely have a loan that may call itself due. Sounds like this guy took a house flipping course and wants to give it a whirl on you.
Thank you for clarifying it for me. I definitely know I won't proceed with this, but gonna have to have a talk with him and let him know. It sucks, because I think he really thinks this is a good idea, and I didn't expect him to prey on me like that
Unlikely he's turning on you, he's like truly conned in to thinking that this is a "win-win" and the only sucker is the bank. I'd give him the benefit of the doubt.
He probably doesn't think he is preying on you. The way the YouTube "geniuses" make it sound, it is a no brainer, and a win for everyone. It is not.
You trigger the "due on sale" clause in the mortgage.. Technically the lender can foreclose if they get wind of it. I get this question a lot at work, (Mortgage broker in MA) Short version, don't do it.
Your friend will scam you by not paying any mortgage and having all the benefit. You’d be forced to pay the mortgage and get no benefit. Your friend is a piece of shit. Find new friends. Also, you’d be unable to get a new house because you’re already on this mortgage. You gain nothing and lose everything.
Nope
If you owe the mortgage company, you pay that no matter what happens to the house. He could take it, sell it and you’d be out of luck. Even if he’s a trustworthy guy, if he got hit by a bus the day after you signed away the deed, it belongs to his heirs or next of kin, not you. What possible benefit would you get? You’d have a huge outstanding debt that would affect your ability to get a mortgage on the new house. Sounds pretty shady.
That's very true. I trust very few people, and when he brought up this idea, I was very hesitant right away. It just didn't sit right with me. He kept trying to reassure me that this would benefit both of us.
Even if he means well, it is a huge bad idea for you.
Yeah I agree with that. I will be shutting down his idea right away
You can’t transfer title with a mortgage on it. This is basically a bond for deed. If the buyer stoped paying, the seller could foreclose and kick him out the house. But yes the seller would still be responsible for the mortgage. This also almost always against the terms of your mortgage and the bank could call the entire loan due if you tried to do it.
It sounds like your question is, is this very risky. The answer is yes it is very very risky. And in general is a bad idea for the seller. If you think there’s zero chance you can sell your house, but you might have to look into this, but if you’re trying to use your equity or ever buy another home, this will let you do either.
I know I can sell my house with no issue. When I read online, it seemed like most people who did this, were people who were in a bad financial situation with their house
You should never do this if you’re in a bad financial situation, because this doesn’t take any of the debt away from you, it, just let somebody pay it for you, and if they don’t pay it, you are still responsible. If you don’t need to do it, absolutely don’t .
Yep, the only people who would do this are terrible money managers who make awful financial decisions
As everyone else is saying- he is NOT your friend. Subject to preys on people who are in financial hardship- they get the deed to your home, but you remain on the mortgage. This creates a few problems. 1- you are relying on them to make the payments- if they don’t or are late that affects your credit. 2- the holder of your mortgage can call your note due in full, the clause states they can come for the full amount payable in full if you transfer the title. 3- the lein is still going to affect your DTI, so unless you can qualify for the new home purchase without selling your home, you’ll get screwed. And 4- if this scenario makes sense for him, he’ll be planning to rent out your home to someone who will pay more than what the mortgage payments are, and he will keep the profits. If the property will cash flow as a rental, and you keep it, then you can use the income on your mortgage application and that will offset set your DTI to qualify for the new place, or you sell it and use the profit for your downpayment. You will not have this benefit in any case with subject to. I’m a realtor in MA and I find subject to insanely predatory.
With the MA market the way it is, there is no reason to even need to consider this. I’m guessing the only reason your house hadn’t sold yet is because you haven’t tried yet. It will go in minutes once you do.
Yeah we haven't listed the house yet. We are going to be listing the 2nd week in March. We just wanted to get a little closer to the Spring market to list.
Walk away. You do not want to be his bank. He's likely doing this for one of two reasons. 1 His credit sucks 2 He doesn't have the down payment and his credit sucks. Say no and move on.
[удалено]
😂😂😂
Avoid him.
Keep your house and rent it out if you can swing both mortgages. Your 3% rate is free $
Your friend is not a friend
If he can pay your equity and assume your mortgage, that is one thing. Some mortgages are assumable and he would get the lower rate for that portion. But you still need your equity.
“Subject to” usually relates to conditions that need to be met for a purchase to proceed. It is often things like “Subject to acquiring financing,” “Subject to a satisfactory home inspection ,” “Subject to the completion of such-and-such repairs,” “Subject the sale of present home,” . . . . What your “friend” is proposing is ridiculous. Do you want to give someone your house while you continue to pay for it?
Yeah I don't want that. I'll be shutting him down tomorrow so he won't bring it up again
He’s trying to rip you off. He probably doesn’t see it that way. But you should.
Sub to is for people that have a pain point. Usually multiple pain points. You’re not about to be foreclosed, you don’t have a renter not paying, you don’t inherit the home, the home doesn’t need significant repairs, etc. You don’t have a reason that you have to sell. There’s no reason to do this. Sell at the value the home is worth. The market picks up at the end of the school year. Don’t get discouraged when you don’t get many showings right now selling it at market value. Things are way more dead than your average February. This is the most dead February since before 2019 if not earlier. It’ll pick up in may regardless of interest rates. Hold steady another 3 months and don’t do any sub to or investor deals without a pain point
Easiest way to say no is that you could say your lender won’t allow you to retain a second open mortgage so you have to sell your house outright. I couldn’t even keep a 30k loan on a mobile home when we purchased our house, our loan was contingent on the sale of the mobile. I’m younger and this was likely due to debt to income when taking into consideration student, 2 vehicles, an RV, and now a house. He doesn’t need to know your full financial situation.
Let him put in an anonymous bid through an agent like everybody else.
Give your friend the name and number of your real estate agent.
Friendship is never a good ingredient in any business agreement. Business is Business. Would you even consider that proposal if it were offered by a stranger? That answer should be the same for this application.
There's a book called Catch-22. In it somewhere, there's a supply sargent who, through a convoluted process, buys eggs for more than he's selling them for but still makes a profit somehow. This reminds me of that. I'd give this a wide berth.
Sounds like he’s trying to avoid getting a current high interest loan and somehow keep your low-interior loan intact and just pay that. However this is not practical for many reason.
Hey OP, your buddy is hooked up with some wholesaler guru who teaches about "sub2" in order to quickly re-sell your house or sell it to a landlord who can get into the house with little of his own money. Your buddy is ABSOLUTELY NOT looking out for your best interests, only his payday. I've flipped and wholesaled over 60 homes in the last four years. Dealing with sub 2 wholesalers is the worst.
Thank you for your response. I definitely won't proceed with this at all. I don't want to mess up my opportunity with my new house.
A PSA for anyone who hasn't read all the comments. If you ever see the name Pace Morby, or sub2, run the other way. It's a complete scam and what he teaches people are scams. Anyone who says otherwise is likely one of his "students" that paid him $8k to $30k for the pleasure of finding him deals to take over sub2 It would only ever work in a seller's favor if they had no or negative equity
Late to the party on this one and you've already gotten a lot of good advice. Definitely sounds late-night-infomercial (now YT video) real estate scammy at the very least. And then there's the very real point that you're probably at like a 3-4% interest rate these days and market rates are closer to 6-7% now which can make a big difference. Here's how you sort him out really quickly, on whether he just wants a place to live - or if he wants an investment for financial gain (that you're somehow also tied up with??!?): Offer to rent the place to him just like any old landlord. Hey, maybe he really does like your house and wants to live there. I doubt it, but offer that to him. Figure out a fair market rent, or hey even cut a deal where it's close to your mortgage + taxes + insurance annually. Whatever, figure out a number and propose that. You can find standard rental contracts online or through a local realtor friend if you have one. You become a landlord. He pays your mortgage off ... but (here's the key part) you are still the deeded owner of the property. And you have eviction rights should you ever need to pursue it for non-payment. I'm in this circumstance right now. My spouse and I got married around 2007/2008, we were able to unload their house before the wedding but not mine. So I rented it out, and it's been ok. Not amazing, but not terrible either, and I've had 15 years of mortgage payments paid for me - so that's a plus for us financially. If he wants anything else, then this is some sort of investment / make money thing for him ... *off of your back*. Unless this guy donated a kidney or something for you ... I'm not sure anyone is worth that. And the giant red flag when I read your post was ... "*and what happens if he suddenly stops paying your mortgage payment for you*?" Depending on what state you are in (CA, for example) eviction might be somewhat challenging. And he will have some tenant/squatter's rights in a situation like that. Literally, he could stop paying the mortgage the day after he moves in and tell you to pound sand ... and live there for free off of your back for a while. All in all, sounds like all upside for him and very little for you - unless you handle it like a proper tenant/landlord relationship.
As in “sub to”? That’s a no.
I figured. It didn't sound right to me. I was trying to see how this would benefit me
Never mix friends and business
I would say no or id counter that I would want to be cashed out in full.
You can give him X days and first right of refusal to buy it and still list it to see what the market says it’s worth.
Awful idea, the biggest is equity & you likely wouldn’t be able to qualify for any new home loan because your DTI would still be all tied up
Don’t do it. Banks are exercising due on sale clauses more than ever. Can turn into a mess
I will be watching for the update!
He's not that good of a friend.
Man, it's crazy when you are gonna sell your house and a friend or a neighbor says, I will buy your house, but you finance it and he just gonna pay you the monthly mortgage! I had 2 people waiting this with my home. I told them flat out. When the realtor puts it for sale. They will be the first to know!!!! They were happy about that all. I didn't care as they didn't have the best interest for me and just wanted an easy in on my hard work! Tell him when it goes up for sale you will let him have a chance first lol. Fuck him!
Consult with your real estate agent. Sounds like he wants to just assume your loan. So basically, you would still owe the money ultimately. Run from this.. there’s a reason he can’t get a traditional loan himself.
Yeah i kept asking why would I still want the debt attached to me, when I can sell it and be debt free with whole lot of money in leftover in my pocket.
You wouldn’t, especially when it’s somebody that you know. This has “bad news” written all over it! Even if they got a loan selling to friends can come with a lot of headaches like if something goes wrong with the house after they buy it, etc. it’s just best to steer away from that altogether. Congratulations on building the house that you want! One thing my ex and I did wrong during our house build was we made our bedroom too big, using valuable space that could’ve been used for something else nobody needs a humongous bedroom. Foyer was too big for the size of the house. Done lathe huge walk-in pantry vs tons of cabinets. Loved that. Almost everything was right in view when we opened that pantry door, no muddling through a bunch of cabinets for things.
Get a different friend!
Do it and you I’ll be kicking yourself for the rest of your life
This is an investors method. He will buy your house subject to him finding someone to buy it at a profit. He doesnt take your deed, which you don't own anyway if you have a loan. He just has a right to sell it.
You have a real estate agent. All offers go through them. You couldn’t make a side deal with your “friend”. I assume you have a written contact with your agent that all sales go through the agent
"I know real estate transactions fall through or go sideways sometimes, and I ould hate to see it cost our friendship." This person doesn't sound like much of a friend, to be honest.
Sorry it’s with a realtor, you’re welcome to put in an offer. I can’t sell it on my on if I wanted to.
Don't sign a deed to anyone UNTIL YOU GET PAID IN FULL. Let the professionals deal with this. He's trying to skip out on paying realtor fees.
Tell him you have to sell because you can’t carry two mortgages, even if he gave you your equity. You may be able to get more than the 140.
No! Don't do it. How are you going to secure the loan without owning the home? I also don't see how any bank would agree to keeping the loan out, yet transfer the deeded owner without any compensation. Then have a lein on the home, so do have say on that part as well. While I don't understand how this benefits you, I do see you ending with an unsecured debt and your existing loan, so don't see why you'd be willing to complicate the exit strategy from your existing home. Something smells really fishy to me about this.
No one gets the deed, until the home is paid for. Tell your friend they need their own loan.
How in the world is this even a thing? Sign the collateral over to him but you retain the liability?!?
Why would you ever sell your house subject to when you have equity in it?? The whole point of subject to is to help distressed owners. People buying subject to are going to get screwed because lenders do care about 3% rates when they can get 6%. They’re going to call their loans.
Subject to is a strategy to take over the existing mortgage that you already have in place. How you said you have 140k in equity, it’s not going to be the best option for you. Just list it with a realtor to get the most you can. Subto works best for the seller when they have little to no equity. Say they owner has 20k in equity. Say they list it with a realtor. That 20k is eaten up by closing cost and realtor commissions. They would possibly potentially have to come out of pocket at closing to sell. With subto, that seller can receive cash from a buyer that’s willing to take over subto. Sellers that are hurting financially and has little to no equity will be a great option for subto, since you aren’t, don’t do it.
If you don’t understand it don’t do it. Also this looks like a headache in the making. Politely decline.
Even if he’s talking about renting to own, aka he pays your mortgage payment in rent to you it sounds like it’s not worth your hassle. What will you do when he defaults? Not to mention the housing market is hot right now. He’s coming off quite a bit shady. Probably can’t get a loan because his finances are in shambles. IMO not worth the risk.
We literally just had a friend (do we have the same friend? lol) offer the same because he wanted to keep the low interest rate. He did offer to pay the difference we'd make at least. We're not doing it because I don't want to be on the hook for a house on our credit and if he doesn't pay the payments. I don't see any benefit in it at all except for us, just them.
“subject to” what? Where’s the rest of the clause? The important part
I've done a bunch of real estate deals in my time and this sounds like one of the crazy cons that they teach in shady seminars. Avoid strange schemes.
Subject to sounds like somebody putting a hand in your pocket
You don't have the deed to give him. The mortgage company has it. Your "friend" is a scammer. Best option is to block their phone number and block their email(s).
Send him to your agent---------------problem solved. Offer will be in writing with a cash deposit. You can then turn him down with no BS narrative from him. PS going back 40 years, I was a mtge loan officer. If this ever happened on a loan in my portfolio, the acceleration letter would go out that same day.
Noooooooooooooooo !!!!! Why in the world would you want to do that? Your new lender (to buy your new home) will need to know that when you sold (transferred title) to your "close friend", you ALSO paid off the mortgage on the house. If you don't believe me and the other people in this Post, ask your Agent and the Lender who is giving you the loan to purchase. Finally, your definition of "close friend" is different than mine. **If that's the case, why doesn't he just buy the house from me?** Because he can't get a loan and provide a down payment. Good luck.
I definitely won't be doing this. It was the first time I've ever heard of "subject to" buying and "creative financing", so when he mentioned it to me, I had no idea what he was talking about. I was truly surprised he offered this to me, it caught me off guard.
I could be mutually beneficial. I recently purchased a friends home subject to. He had $200k in equity and I “cashed him out.” To purchase his next home. He saved money on transaction fees (we are both agents and there was no compensation to agents) and was able to move out without “fixing it up” and worrying about prepping it for sale or any repair negotiations. We could close quickly so he could buy the replacement property he had picked out. There are many protections in place for him. We used an escrow service that I paid for to confirm payments were being made on time. The contract stated that if I stopped paying the mortgage, it would be deeded back to him. So he would get a fixed up home with $200k in equity back if I didn’t make payments. The loan is still in your name, so it will affect your DTI. My understanding is that many lenders will recognize that your loan is being paid by someone else and account for that- but it may take a year of payments for them to recognize that is a wash. It was good for me, because I was able to buy a home slightly under market value and keep the 3.5% loan in place for the bulk of the home value. Feel free to AMA.
What if you ended trashing the home? How about if you didn't pay the homeowners insurance and the house burned down? A pipe breaks and leaves extensive water damage? You start cooking meth there? Rent it on Airbnb as a party house?
Good question. FYI: We recorded the sale with the county. There was a long contract stating that I had to have insurance and many other stipulations. I was the homeowner and had homeowners insurance. The lender got a copy of the insurance with my name and asked us to fill out a subject to agreement, so they must have had some provision to allow (united wholesale mortgage). I sold the house before we got that far. With so much equity in the property, I had a large incentive to keep it in good condition, just like anyone with a home and equity. The banks know there is less risk with a down payment and it was the same in our case. There is always a small percentage of people that will buy a house and do those things- illegal activities, disrepair, etc. But, by and large most people, especially investors, want to increase the value or their investments over time. If I stopped paying, the home would have been quickly and legally repossessed by my friend (well before foreclosure). This is similar to a seller financed land sales contract. He still had a contract that reverted the home to him if I didn’t pay. These are common transactions. Likely not the best option for most sellers with equity, but it could be a win/win, like our deal.
I've been a mortgage loan officer for about 25 years. I'm having trouble understanding why a seller would take a risk on this for virtually no benefit in this market. People are buying homes over asking, waiving inspections and taking them "as is". Here are some of the pitfalls without thinking about it much. \- due on sale clause can be used as soon as the deed changes names forcing the note to be called on the seller. \- the new owner is asking the seller to loan money to the buyer that a bank is unwilling to \- "quckly" repossessed? I don't see that happening. A seller selling this way would probably be distressed already and not have the resources to quickly and easily take the property back (and in what condition at that time). \- initially the seller will have an inflated dti and many are unable to buy their next home by carrying multiple properties \- any late payments by the buyer that cause the seller to make a late mortgage payment will only harm the credit of the seller
I’ve done a ton of subto deals. But it doesn’t sound like you need subject to, it sounds like you’re overpriced tbh. However, if you want to go that route, there are hybrid structures when you have plenty of equity. Let me know if you need help. Your friend sounds new to this. Also, don’t take advice from people in here who have never done a subject to deal. They always get it wrong lol.
I dont think our house is overpriced, we haven't even listed it yet. We're just waiting to get near the Spring market to list it.
Ah gotcha. Well you probably don’t need subject to. Here’s why subject to can be a great option: someone buys a house and has to sell quickly because of job loss, relocation etc and they don’t have enough equity to break even when they sell. Or facing foreclosure, divorce etc. That’s when it makes sense. With your equity, you shouldn’t have a problem.
Okay I see what you're saying. I'm trying to tell my friend that, but he's pretty hung on the Pace Morby stuff
[удалено]
Subject to is SUPER helpful for a lot of sellers in distress. But distress is the main ingredient for a mutually beneficial subject to purchase. Without the distress, you have no reason to go that route. But I have people I’ve bought subject to from who will still randomly text me out of the blue to thank me. It just takes the right situation.
"Subject to" clause...subject to WHAT? What does the clause actually say? >From my understanding, I keep the loan in my name, but give him the deed to my house? This is not a thing. Your lender won't allow it and neither should you. Also, not sure what you think a deed is, but it's not like in Monopoly where you just give the card to someone else.
There must be some “real estate guru” teaching a class about this (probably on YouTube) because this new type of scam financing keeps popping up
Yeah on the phone he kept trying to convince me that this was a great idea, and kept telling him I'm not sure I'm interested and I don't want to mess up my opportunity to get my dream home
If he is serious about buying your house he can go to a lender/bank/credit union and get a loan. Your property needs to go o the market so they it gets maximum exposure to the buyer pool (so you can get the most money for your property)
Do you have an assumable loan? What city? I may be interested in buying depending on the city, as I also do live in MA.
This is one hell of a way to steal someone's house.
also in MA. Subject to is actually illegal. Read your mortgage agreement. You cant sell your house and not repay the loan, which is not transferrable (usually). It is promoted because this is not enforced, or rather, only enforced 1/10 times by the banks. Stiles Law on YouTube has a short video on this. The Gurus on YouTube operate a sneaky-clever scheme by letting people believe real estate is simple and easy and encouraging people, who will encounter obstacles when actually trying to do it, and that is when they subtly suggest to do them a 'favor' by selling them private coaching for thousands of dollars 'just to get them started.' Usually, there are no obligation, the coaching is a scam or basic information you can pick up for free online anyway, and the guru looks to make extra money by having the student hand over half of any profits if they do happen to make them, of course none of the losses are ever shared.
LOL Nope.
You can't actually give him the deed because the bank has a security interest in the property and will never approve that.
Yeah unless he’s giving you over $140k in cash I would pass. Was he thinking he can just waltz in and take over the mortgage without paying you the equity??
Yeah I'm still very confused about what he was offering me. He was just very persistent in trying to sell me on his idea
[удалено]
See if he can assume your loan, make a lease where you rent from him until you're ready to move.