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Updated over 11 years ago on . Most recent reply

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Alex Peau
  • Ontario, CA
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What happens if... (subject-to question)

Alex Peau
  • Ontario, CA
Posted

Helllooo BP,

Hypothetical question.. If I were to purchase a property "subject-to" from a motivated seller and 6 months down the line the original owner wants to purchase another property that he/she will be occupying; how difficult would it be for the seller to qualify for a new 2nd loan on a new home being that they still have a first mortgage attached to their name? I imagine that the debt to income ratio would effect the seller greatly when trying to qualify. Is getting a 2nd bank loan impossible? If not what would need to be provided to the potential lender to allow them to get the 2nd loan? Do you primarily only do subject to deals on NOO properties since it isn't their primary residence?

If any light can be shed on this that would be awesome!

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Augie Byllott
  • Real Estate Investor
  • Champions Gate, FL
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Augie Byllott
  • Real Estate Investor
  • Champions Gate, FL
Replied

There are a couple of possible solutions to the issue of a sub 2 seller looking to purchase another home with a traditional mortgage. First, I always recommend they wait a year because it allows you to establish a payment track record. Next, it is important to remember that the current norm is for a lender to consider 75% of rent as income thereby lessening the impact on their DTI but in the case of a sub 2 some lenders take 100% of the payment being made against the mortgage, thereby mitigating any potential impact on the DTI.

They have documentation they can share with their prospective lender such as the HUD as well as your mortgage statement showing that the payments are being made by a party other than them. Different lenders will view the situation in different ways so they should expect to speak with either a mortgage broker who works with multiple lenders or they cn approach nore than one lender to get a handle on their particular underwriting perspective .

It is always a delicate conversation and should be handled in an honest and forthright manner. Usually a seller sell a property subject to because it i giving them a benefit they couldn't otherwise receive (i.e. quick sale or not suffering the impact of no or negative equity).

Last but not least we recommend they do not go back to their former lender so as to not invite any potential "due on sale" issues.

Hope this helps!

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