Buying a Home with No Credit or DownPayment
Buying a Home with No Credit or DownPayment

What is Sub2?

Buying Subject 2 is short for Buying Subject 2 the existing mortgage, which means that the buyer is not getting a new loan, but they are taking over the financing that is already in place.  Taking over the debt that has been established by the seller, the sellers debt, but at the same time transfering the ownership.  The transfer of ownership takes place, but the debt remains.

How is this possible?

It's easy really, and a great way to buy many houses with little or zero money invested into the home, initially.  Obviously, there is money invested ongoing with the debt services (the mortgage payments), but ultimately the concept of the debt and the concept of the owner, have no direct point-to-point direct relationship.  So ownership can be transferred, but it could trigger a clause in the note called a due-on-sale clause.    The the garn st. germain act of 1982 allows the bank to call the note due when ownership is transferred.  However, under that same law, there are opportunities for investors to keep the loan in place and capture that low interest rate and no down payment for the purchase of the home.

Is this allowed, legally?

Look up line 503 on the HUD Settlement Statement,  that is where the transaction takes on credibility since the HUD Settlement Statement is a government document.      

So, how specifically does this work?

It's just a deed.  The buyer gets a deed to the home, and starts making payments the next month.  What is the advantage of this?  Many advantages:
  1. Lower or no down payment.
  2. Lower interest rate (usually an owner occupied interest rate)
  3. If the loan is a little older, you get to capture more principal paydown based ont he amortization schedule
  4. the debt is not on the buyer's credit
 

What questions do you have?

Can you see how this technique could add a number of homes quickly?  Leave a comment if you have a question or would like some help on how to implement this technique into your business.        

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