Seller Open to Sub2 But Wants to Buy 2nd Home

[Andrew Yu]

Seller is open to sub2, but wants to buy 2nd house. Does their 1st house's debt count against debt-to-income ratio when they apply for loan on 2nd house?

[Curt Smith]

Even as a sub-to after 12 mo. of on time mortgage payments (by you the investor) Dodd Frank says any lender on new debt can't count the current mortgage against their DTI, but has to be >12 mo. You can call a mortgage lender / broker yourself. But you'll confuse them with sub-to discussion.

If they need to buy in less then 12 mo, and they have marginal DTI then the wrap solution will work, where the wrapping loan has exactly the same balance and monthly as the underlying. The extra note and security deed won't add any cost to the sub-to closing.

I help folks with sub-to documents/closings. Besure to get at the least 2 POAs, one giving power to manage the insurance policy, the other to manage the current mortgage, even if you do the wrap. You need to have POAs so as to at the least change the mailing addresses, change who can manage each.... I use the bank POA to create a new auto pay account ACHing from my business account. I never fool with writing checks on rental mortgages, hands off!

Get a new insurance policy, canceling the current (after you change the mailing address).  The new policy must be a landlord policy, naming the current owner, bank and you (or your entity) as another also-insured.