Subject 2 Real Estate Investing
Subject 2 is a type of real estate financing strategy that allows individuals with bad credit buy a house by taking over the property owner's mortgage loan. Also known as "Subject To" and "Sub2", this home buying option has become quite popular amongst real estate investors and buyers who need to quickly sell their home.
Subject 2 is perfectly legal and can be used by individuals wanting to buy a house; sellers needing to sell their real estate fast but unable to locate a qualified buyer; or real estate investors wanting to add additional investment properties to their portfolio.
When Sub2 contracts are used the homeowner transfers the property deed to another party. Instead of obtaining financing through a mortgage lender, the buyer sends mortgage payments to the property owner's mortgage company.
Once the property deed transfers, the buyer is financially responsible for paying the note. The buyer owns the property, but the loan remains in the seller's name. Buyers with bad credit can take advantage of reduced interest rates and lower mortgage payments by using the original mortgagor's good credit.
Since Subject 2 is often used in lieu of bad credit lender loan mortgages, buyers must engage in credit repair so they can eventually qualify for a mortgage loan and buyout the seller's rights to the property.
Subject To can be advantageous to both buyers and sellers. Buyers can work toward homeownership without the need for a large down payment and high FICO score. Sellers facing financial hardships or whose property is at risk for foreclosure can enter into Subject To contracts to reduce financial pressure. Other reasons for entering into Sub2 include job transfers, unemployment, marriage, divorce or death of a spouse.
Individuals who elect to engage in Subject 2 real estate transactions should work with a qualified lawyer. Contracts must be drafted and executed through the court. Sellers assign ownership rights to the buyer, but those rights are "subject to" fulfilling contract obligations. If the buyer defaults on the contract, the seller regains their rights and is not responsible for reimbursing the buyer any funds contributed toward the real estate purchase.
Subject 2 contracts are enforceable in a court of law. The length of the contract is determined by the seller. On average, subject to contracts extend for two to five years. Afterward, buyers obtain a conventional mortgage note unless they are able to buy the house with cash.
Buyers are responsible for costs associated with obtaining home mortgage loans. Common costs include real estate appraisals, property inspections, mortgage insurance, loan points, realtor commissions, and closing costs.
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Published on August 03, 2010 at 03:37 AM