"Subject To" financing

[Grand Wally]

Hello all...I've gotten a few definitions on "what" it is...can somebody please help explain what exactly subject to financing (taking over payments) is, why it is often a good investment and exactly "how" to do it? Thanks a lot

[Kathleen Couch]

Hey Urban Investments,
In your hypothetical with a value of $200,000 and total of $160,000 loans against it, and being broke, and bad credit. He might also be late on payments on his mortgage. You would have to use the permission he signed to talk to his lender to find out what is owed in arrears, and lawyer fees, or late fees, whatever. That may be the only amount down, depending on how fast he wants to get rid of the problem, and also how much repairs to the house will be. You will be improving his credit, by then making the payments on time. He would lose the equity anyway if it foreclosed.

If someone has an adjustable rate mortgage, you would know that when you talked to the lender. Some adjustables you could live with, but if not, don't do the deal. Remember you have clauses in the Purchase and Sale Agreement, that if you find out, when you do the due diligence that it will not work out for you, the deal can be voided.

Of course, do not offer anymore money than you have to, but if there is such a large margin that you need to pay something for the equity, you have the option to whatever the seller will agree to. You could make in your contract to pay additional money to the seller when it is sold, but I would make if a set amount, and not a set time. If you make it a percentage, the seller will always think he was cheated, or could have done better, if you would have managed better, or sold at a higher price. You don't want to give the opportunity for someone to try to micro manage you.

Some of the best loans to take over, are owner occupant loans, that people had good credit when it was taken out. Owner occupant loans are generally lower interest than investor loans.

Your exit strategy is going to depend on what is best for the property, what you are comfortable with, and the market. The advantage of lease option is that you have more people who will qualify, and you will be helping someone with some credit problems get into a house to buy. With lease option you have three times for profit. One with the option payment up front, (maybe $5,000), then cash flow each month, (monthly rent can be a little higher than normal rent), then the largest amount when they refinance and pay the remaining amount off. If they decide they do not want to buy the house, or do not qualify at the end of the option period, you can choose to have them move out, and re lease option it, or sell the property. No money is returned from the option payment, etc.

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