This time of year is known for last minute summer activities with the kids and finding a new home before the school year starts. When you think about buying a home, you probably think about real estate agent commissions and loans from the bank. Did you know that there is a way to buy a home without even thinking about a bank? Today we are going to talk about one of the more common types of creative financing that can help out potential homebuyers just like yourself!
The first creative financing method is called “Subject-To” or “Sub-To”, and it is amazing for people who can find someone with a VA loan! Subject-To the creative financing is the lengthened version of the concept, but who has time to speak that mouthful 20 times a day when speaking with different buyers and sellers? Simply, Sub-To means that you will be taking over the mortgage payments from the current seller who may be struggling in one or more aspects. An example of this would be with Lisa.
Lisa is trying to sell her home because she will be moving into an assisted living facility. However, she has an existing mortgage and her property has been on the market for 120 days because buyers are not able to afford loans with the conventional financing strategies. One day Mark talks to Lisa about buying her home. He offers to take over her current mortgage and give her a decent down payment to help her get settled into her new living situation. The exact balance that Mark will be paying off is $165,600.00 out of a $200,000.00 loan over 25 years. Mark has inherited a fixed interest rate from a VA loan at 3.2%. Now… PAUSE.
Who do you know right now that is lending out loans at 3.2% interest? Not. A. Single. Lender. That’s who. This is one of the key advantages to Sub-To, is inheriting great interest rates and lower monthly payments.
With this 3.2% interest rate, Mark will be paying about $573 dollars each month to Lisa’s mortgage institution. This mortgage will remain in Lisa’s name, however, Mark will be making the payments to the lender each month. This can be difficult depending on the financial institution that the loan is through. As well as the loan type. For more information and workarounds to these specific questions, please email me at liz@rwhousingnc.com!
Now that we understand sub-to and the structure of the deal, let’s take a look at who this would benefit!
- First time homebuyers
- People who have damaged credit
- Homebuyers that already have a loan out in their name on another piece of real estate, or a vehicle loan
- Investors
There is not one singular group of people that need to know about Sub-To! Everyone that wants to buy a home in the United States needs to know creative financing strategies! Tell your friends and family, because who wants to see a loved one get a 7% interest rate shoved down their throat? Not me!
Sub-To is not recommended to anyone that has difficulty making on time monthly payments. Some individuals prefer to make a large lump sum payment in cash, rather than have the albatross that is monthly payments around their neck. To each their own, if you have the capital to pay in cash, ABSOLUTELY DO IT!
Thank you so much for reading this month’s edition of the RW Housing Real Estate Update! Next newsletter we will dive into our second type of creative financing…
Submit your topic requests/predictions to my email at liz@rwhousingnc.com
1 comment
this is awesome!