Englishman in Dallas is an expert in creative real estate transactions so if you’re looking for a unicorn REALTOR® in Dallas Fort Worth who understands and can structure and facilitate creative finance deals then read on.
Creative finance refers to unconventional strategies or methods used to fund or structure deals, particularly in real estate, that differ from traditional bank financing. It focuses on finding alternative ways to acquire assets without relying solely on standard loans or cash.
Subject To
In real estate, “SubTo” stands for Subject To financing, a creative strategy used by real estate investors to acquire properties without needing to obtain a new mortgage. Basically, leveraging
existing debt.
Here’s how it works:
● The investor purchases a property “subject to” the existing mortgage. This means the buyer takes over the seller’s existing mortgage payments without officially assuming the
loan. This is also known as a “silent assumption” or “non qualified assumption.”
● The original loan remains in the seller’s name, but the buyer takes control of the property and makes payments directly to the lender.
● The property title is transferred to the buyer, but the seller’s name stays on the loan. This is good for sellers who have a foreclosure looming over them, have little to no equity or
perhaps their REALTOR® has been unable to sell their house traditionally. This strategy will open up sellers to a larger pool of buyers. It’s good for buyers because they inherit the interest rate which may be lower than current market rates and they also inherit the remaining duration of the note instead of a newly originated 30 year note.
Owner Financing
Owner financing, also known as seller financing, is a method of financing where the seller of a property acts as the lender to the buyer. Instead of the buyer obtaining a mortgage from a bank or other financial institution, the buyer makes payments directly to the seller over an agreed period of time.
In an owner-financed deal, the seller typically requires a down payment and then the buyer makes monthly payments based on an agreed-upon interest rate and term.
At the end of the term, the buyer may pay off the remaining balance in a lump sum (a balloon payment) or have the option to continue with payments until the full amount is settled.
Owner financing can be beneficial in situations where the buyer may not qualify for traditional financing or the seller is looking for a faster, more flexible way to sell their property. The terms are fully negotiable and will depend on the variables.
Owner Finance Wrap
An owner-finance wrap in real estate is a type of financing arrangement where the seller (the property owner) provides a loan to the buyer to purchase the property. The “wrap” aspect refers to how this loan is structured—it “wraps” around the seller’s existing mortgage.Here’s how it works:
1. Existing Mortgage:
The seller of the property may still have an existing mortgage with a lender. This is the original loan they took out when they purchased the property.
2. New Loan (Wraparound Loan):
The seller provides a new loan to the buyer that is larger than the remaining balance on the existing mortgage. This new loan includes both the seller’s original mortgage and the buyer’s purchase price.3. Payments:
The buyer makes monthly payments directly to the seller, based on the terms of the wraparound loan. The seller, in turn, continues to make payments to their lender on the original mortgage.4. Seller’s Role:
The seller acts as the lender to the buyer but continues to pay off the original mortgage. The seller usually profits from the difference between the interest rate on the wraparound loan (charged to the buyer) and the interest rate on the original mortgage.Example:
● Original Mortgage: The seller owes $200,000 on their mortgage with a 4% interest rate.
● Purchase Price: The buyer agrees to purchase the property for $260,000.
● Wraparound Loan: The seller creates a wraparound loan for $240,000, including the $200,000 balance of the existing mortgage and the $40,000 difference, which is the amount the buyer is financing directly with the seller. The buyer must pay $20,000 downpayment. In this case, the buyer’s monthly payment is based on the $240,000 loan amount (not just the $40,000 difference). The seller collects these payments and continues making payments to the lender on the $200,000 balance. This is good for Investors looking to cash flow without the headache of being a landlord. Someone selling a home who would like to benefit from passive income for the duration the note exists.
For example:
Price of house is $400,000
Seller’s current mortgage balance is $320,000 @4% Interest so their Principle and Interest payment based on a 30 year amortization schedule is $1527.73
Buyer pays $400,000 with 10% down meaning a new loan/note will be created for $360,000 over 30 years and in this case we shall set the interest at 8% which is very competitive for seller finance and could attract a lot of attention. The principal and interest that the seller will receive on the wrapped loan would be $2113.24 meaning monthly passive income of $585.51.
Remember also that this is fully amortised.
Hybrid
This is where we blend Subto and Owner financing. It is used as an entry strategy for investors who are buying a property Subto but where there is a lot of equity.
Here is an example:
The price of the house is $500,000 but the balance of mortgage which the buyer will take over,(Subto) is only $300,000 meaning there is $200,000 equity. Let’s say that the buyer puts down $30,000 cash. Now we have a balance remaining of $170,000. The seller can create a note for this amount, (owner finance) meaning that the buyer can pay this back over an agreed duration at a predetermined interest rate.
If you are interested in buying or selling creatively then contact me on 214 970 2526 or Englishmanindallas@gmail.com