Subject To | Buying Subject To Existing Financing

When sellers need to sell fast it's easy for you to buy their house by taking over the payments on their existing financing.  You don't need to qualify to take over the payments and you don' t need to assume the loan.... you just start making their payments.  Buying Subject To existing financing is a fast and easy way to acquire property.  But you need to be careful to not buy properties which will not cash flow and don't take over payments on a loan that has a balloon or one that is more than the house is worth.

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In recent months, with foreclosures mounting, lenders have tightened loan underwriting standards to that it has become much more difficult and expensive for a non-occupant to finance a house.  This has two completely different effects.  It reduces competition from other buyers and, at the same time, increases competition among sellers of properties that need to
sell.  The net result is that they are much more willing to listen to unconventional financing schemes than in the recent past.

There are many ways to arrange seller financing without the use of banks, but the most efficient way to buy houses for sale is not to buy them at all.  Rather, with only a minimal earnest money deposit, enter into a contract to buy a house at a discounted price, then sell the contract for a profit to an owner/occupant who can get financing.  This uses up very little cash and virtually none of your credit line, yet the profit is comparable to actually buying and selling the same house.  When you can buy Options, you can afford to put less down and increase your volume without increasing your investment or risk. 

Some lenders are now posing "seasoning" restrictions that require a seller to have owned a property for several months prior to selling it to someone else who would apply for a mortgage.  As the Option holder, at closing, your buyer would be buying directly from the long term owner, who would use some of the loan proceeds to buy back your Option, or to induce you to cancel it.  Voila; no seasoning problem.

Some States have placed severe restrictions on people who take title "Subject To" a loan, but an Option that calls for a full cash payment legally skirts this problem.