 I'm not exactly sure where the term Subject-To came from, but I'm sure whoever established this method of investing should be considered a downright genius. Subject-to loans, which are also called Seller or Owner Financing, is a loan that essentially stays in the seller's name. In other words, the owner or seller of the home leaves their existing loan in place and the buyer simply takes over the payments, often times with extra interest payments tact on. The buyer becomes the owner of the property when the seller signs the grant bargain, sale deed, or other specific device to transfer the property. Often times, sellers can offer No Qualifying Loans to their buyer's in order to make the property more attractive for sale. While selling a home with No Qualifying does reduce the stringency of traditional loans, it does not necessarily mean the buyer has bad credit. A lot of the time, lenders require two years of residency before giving out a loan. No matter what the buyer's credit status, you should get about a 10% down payment on the house. You can also raise the interest rate to add additional income to your pocket every month. The potential profits on this kind of investment can be phenomenal. Let's not forget that the buyer can use owner financing when advertising his or her property. This often grabs buyer's attention, especially in cold markets where financing is hard to come by. As always with any real estate investment venture, there are risks. However, with the correct investment structure, you should have no problems. Many people use Loan Servicing Companies to collect buyer's payments and to disperse the funds to the ‘lenders'. In this way, the seller will not have to worry about missed payments and their credit being affected. It is also a good idea to set up a trust account with the LSC (usually from the down payment received), just in case the buyer misses a payment, you will be covered. There are many other ways to cover yourself to reduce unnecessary risks associated with seller financing. That is why it's a good idea to go through investors with seller financing experience. For instance, Butterflylister.com is a group of investors specializing in this type of financing.
Hopefully you have a better understanding of ‘Subject-to' investing. You can read my previous posts, or visit http://www.butterflylister.com/Invest.htm for more information. (Posted by: K.Skowronski)
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