There are many creative but still legal and legitimate ways to sell your Phoenix home. With the agreement of both the seller and the buyer, these processes can provide great results for everyone involved in the transaction. One of these methods of selling a Phoenix property is called selling Subject To The Existing Mortgage.
This process offers many benefits to both the seller and the buyer of the property. And as long as both parties can agree on terms for the deal, this can be a smooth transaction. But it is imperative that this lesser known process be done correctly to avoid placing the buyer and seller at risk.
What Is Selling Subject To The Existing Mortgage?
Basically, this is a transaction that sells the property without paying off the current mortgage. The mortgage remains in place on the home, and the buyer takes over the responsibility of making the mortgage payments. It is also important to know that the deed to the property is transferred to the buyer.
Benefits To The Buyer
Buying a home is a huge investment, and it requires that the buyer have a rather large amount of cash to complete the deal. In addition, the buyer must finance at the current interest rate with a traditional lender or private money lender. The specific benefits of buying real estate subject to the existing mortgage include:
- Less cash is needed at the time of purchase making it easier to complete the purchase.
- The interest rate and mortgage payment are both typically lower as a private money lender is often charging 10% or more in interest, but that is not needed as there is no down payment as there is in a traditional real estate purchase.
- The buyer does not need to seek financing as it is in place which is faster and helpful to a buyer who might not qualify for a loan.
- With no large cash requirement, the buyer has the ability to invest cash in the property for repairs and renovations.
Benefits To The Seller
Unfortunately, there are many events that can occur which make owning a home both financially and emotionally challenging. In some cases, the issues are through no fault of the homeowner such as the loss of a job, loss of a family member who was a major financial contributor or even health issues which limit the ability to work or result in excessive medical bills. All of these events can make paying a mortgage or even maintaining a home next to impossible. When a homeowner is facing these types of unfortunate events, the best possible outcome is to sell his or her home quickly. Specific benefits to the selling real estate subject to the existing mortgage include:
- PAYING NO FEES
- PAYING NO COMMISSIONS
- PAYING NO CLOSING COSTS
- Selling on the date of the homeowners choice
- Selling the home quickly
- Making a profit on the sale of the house due to the unique terms
- Getting cash at the closing if the homeowner has equity and the seller is willing to pay for it
Potential Down Falls Of Selling Subject To The Existing Mortgage
Nothing is ever perfect and if someone tells you that they have the perfect deal then beware. There are catches in almost every type of deal. But being aware of potential glitches and how to work with them is critical to making creative real estate deals a success for everyone involved.
The Due On Sale Clause
The due on sale clause is one of the biggies to look for in the original loan documents. It basically means that if the title of the property changes hands, then the lender has the right to call the loan due in full. But bear in mind that the lender has the right, but that does not mean that the lender must, or even will, call the loan due.
What you really need to know is that there are thousands of homeowners in Phoenix who are selling their homes subject to the existing mortgage and many real estate investors who take part in these sales regularly. In our history here at Higher Offer, we have never had a lender call a loan due when the title changes hands to the buyer. Our experience is that when the mortgage payments are made on time, the bank does not appear interested in pursuing this early payoff. To ensure that payments are on time, we do however use an escrow company to be absolutely certain that the entire process is completed in a legal and professional manner.
Title Insurance and Mortgage Servicing
The title work and title insurance are critical steps that must be a part of any Phoenix real estate sale subject to the existing mortgage. As the seller, you also need to work with an escrow company to be certain that the payments are made on time and to protect yourself if the buyer is not making the payments. Be sure ask the escrow company to do a mirror wrap on the agreement so that you are well protected if the buyer fails to make any payments.
It is always critical to be certain that any home is insured. Most mortgages require that the insurance is paid as a part of each months mortgage payment which goes into escrow until the payment is made. The property taxes are often handled in the same manner.
Because you already have homeowners insurance to satisfy the mortgage company, it is best to leave that insurance in place. Many times, it is the insurance canceling and new insurance being applied to a mortgage that causes the lender to investigate and then act on the due on sale clause. It is far better for everyone involved to simply add the buyer’s names to the existing insurance policy.
Mortgages That Cannot Be Sold As Subject To Existing Mortgage
When selling a Phoenix property subject to the existing mortgage, the mortgage must be a conventional loan. FHA and VA loans cannot be passed along to a new buyer. The issue is that title companies will not insure the property at the sale if the loan is a VA or FHA. So be certain that your mortgage loan is conventional before offering to sell subject to the existing mortgage.
Home Equity Line of Credit
A home equity line of credit on a property is another complication for a sale subject to the existing mortgage. The HELOC needs to be paid through escrow when the house is being sold. This is a benefit to the buyer because a HELOC is an open line of credit that the seller could continue to use causing the buyer to owe more money than was originally agreed upon to pay off the HELOC. Title companies will also require the HELOC to be paid off at the closing when subject to the existing mortgage is a term of a real estate sale.
There are pros and cons to each and every type of home sale and selling subject to the existing mortgage is no different. But with a basic understanding of the process and the assistance of a reputable escrow/title company, this offers many options for some Phoenix sellers and buyers.
Higher Offer is a Phoenix real estate investment firm which is always interested in making an all-cash offer on any property in the valley. We have the experience and understanding needed to work with all types of sellers and all types of sales to best meet your needs for a fast and trouble-free home selling experience.