IS SUBJECT TO DEAL POSSIBLE WHEN SELLER NEEDS ANOTHER MORTGAGE??

[Nick Barberio]

I am a real estate agent on Long Island, working with a buyer who has $150,000 to put down and is looking to maintain a $4,000 monthly payment (between principal, interest, taxes, and flood insurance). I found a motivated seller who is looking to get $700,000 for their house. Of course, with the going interest rate, my buyer cannot afford this house. However, I checked public records and see that the seller closed on this house in June of 2020. I looked up interest rate during that time so I believe his interest rate should be around 3.7% (possibly lower). I ran numbers and they look like this... 

Purchase Price $ 700,000.00

Down Payment $ 150,000.00 

Subject to Mortgage (3.7%) $ 500,000.00 

Seller Finance (10 year term at 8%) $ 50,000.00 

Subject to Payment $2,301.41 

Seller Finance Payment - $606.64 

Taxes(12,200) + Flood($1,000) - $1,100.00 

Total monthly payment for my buyer - $4,008.05

The seller is motivated because he found a new house he would like to buy but the purchase will be contingent on the sale of his house. I HAVE NEVER DONE A SUB TO DEAL BEFORE. But this seems like it makes sense. I know the seller will need to take out a mortgage for the new house that he wants to buy. I remember Pace saying it is possible to do a sub to deal by somehow off-setting their mortgage debt with the payments that my buyer will making, allowing them to qualify for another mortgage. Can someone please let me know if this is possible and help me understand how to do it? I will be eternally grateful

[Nate Sanow]

I don’t know the answer, but I salute you for trying to find a creative solution! 

[Sean Bramble]

My understanding is that it shouldn't hurt his DTI since his previous loan will be "serviced" by the buyer. Not sure if there is a time lag between when a new lender would recognize this or not

[Doug Pretorius]

@Nick Barberio You would have to explain the situation to the seller's lender. They may require the buyer to sign an affidavit of responsibility to the payments. The seller should also use a different lender to reduce the chance of their old lender calling the loan due.

Another option is to use a contract for deed. The income from them is typically credited 100% to the seller's income.

[Nick Barberio]

@Sean Bramble yes that is what I expected as well. I think what @Doug Pretorius is my best course of action. I appreciate the response from both of you

[Clifton Willis]

@Nick Barberio I know someone who deals with these type of situations often. I would like to help.

[Amit Chawla]

Hello @Nick Barberio from my understanding you would have to discuss with the lender as to what they will allow. Typically if you can show that the debt will no longer be serviced by the seller, then they will allow for that debt to be exempted from their DTI. Since the old debt (now being serviced by your buyer) is for their primary residence, then 100% of the income would be counted. If it is for an investment property the seller has, then i think its typically 80% of the income is applied to the DTI.

[Nick Barberio]

Quote from @Amit Chawla:

Hello @Nick Barberio from my understanding you would have to discuss with the lender as to what they will allow. Typically if you can show that the debt will no longer be serviced by the seller, then they will allow for that debt to be exempted from their DTI. Since the old debt (now being serviced by your buyer) is for their primary residence, then 100% of the income would be counted. If it is for an investment property the seller has, then i think its typically 80% of the income is applied to the DTI.

 Great! Thanks for the info