I have an owner that is already preapproved for a new mortgage on a house they want. It is conditional upon selling this house. Would a lender look more favorably upon a Sub 2 that I could prove (show them the paperwork that it is already deeded to me, etc.) or would them L/Oing it to me and me L/Oing it out look better to the bank? Or is this deal going to be hard to do at all?
I would have to think waving Sub To paperwork in front of a lender is inviting the DOS clause to be invoked.
PamJM,
Glad to meet you.
Having successfully helped many sellers while using the Subject To method in the situation you are in, what a lender is looking for is the debt to income ratio of your seller.
The mortgage underwriter who prepares the paperwork for the lender has a check list that he fills out and one of the conditions is the debt to income ratio and showing that the property has been sold albeit Subject To and this has always worked to put the debt to income ratio in line with the seller being approved for the new loan.
It has absolutely nothing to do with the DOS clause being invoked as the mortgage broker only gets paid when the loan is approved and showing the transfer of deed has worked as I say many times. The lender or the mortgage broker are not the DOS police, they only make money when the deal is done and when the underwriter checks off that the property has been sold backed up with the deed in a different name than your sellers the new loan is approved for your seller.
John $Cash$ Locke
$Cash$ gave you an authoritative answer when the seller’s property is sold Subject To existing financing.
When the seller enters into a lease option arrangement, the lender treats his property as an investment rental. If 75% of the annual rental income divided by 100% of the annual expenses, is greater than or equal to 1.0 then the seller’s debt to income ratio won’t be adversely affected. If the result is less than 1.0, then his DTI ratio goes up.
The Subject To should take the relinquished property out of the DTI equation. A lease option could improve the DTI if the income and expense numbers are favorable.
I think the proper question is not whether one strategy is more favorably viewed by the lender, but rather whether the chosen strategy will adversely affect the seller’s DTI ratio.