Sitting on a 2.5-4.5% mortgage and loving it but also hating it because it won’t let you move? As the Wall Street Journal² put it:
“The paralysis has left many people in houses that are too small, in jobs they don’t love or shackled with ‘golden handcuffs.’ ***Americans are stuck in place.”
One solution: Sell your home “subject to” your low rate mortgage, but “mark it up.” In this arrangement, transfer your property to the buyer with your existing loan still in place. The buyer pays you each month and you continue making payments to your bank. For example, if your mortgage rate is 2.5% you could sell your home and offer a buyer a 5% rate. Each month, the buyer pays you at 5, you pay your bank at 2.5% and you keep the difference. You can use this extra income to offset the higher cost of a new 6.5% loan when you buy your next home. That effectively reduces your borrowing cost on the amount of your existing mortgage to 5%–not like 2020 but historically very affordable.
This approach uses an “all-inclusive” or “wrap around” mortgage. In this setup for a Seller Financing Wraparound Mortgage, the buyer gives you a mortgage that covers the amount you still owe on your home loan. You essentially become the lender. The all-inclusive loan (Seller Financing Wraparound Mortgage) can be for just above your current mortgage or higher if needed to make the deal work. The buyer pays any remaining purchase price in cash. You can use this profit to help you’re your new home loan when you move.
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That’s not true. Seller Financing Wraparound Mortgage or all-inclusive loans have existed for decades, though they are utilized more when mortgage rates rise. Sellers have been offering seller financing for many years. There is nothing new or fraudulent about these arrangements. The California Realtors® and other Realtor boards use the Seller Financing Addendum and Disclosure (SFA) Form—these are standard, legitimate documents. Additionally, a California court has reviewed and rejected the claim this practice is fraudulent.³
Technically, that is true. It’s called a “due-on-sale clause” in the loan contract. However, lenders rarely enforce these clauses.4
Why? Because the average mortgage loan is pooled with others and sold on the stock market as mortgage-backed securities. The trustees of these pools have no marching orders to call loans because there was a transfer of title. A good set of Seller Financing Wraparound Mortgage loan docs (like those at DossDocs.com) will give the buyer time to refinance if the old mortgage company calls the loan because of a transfer of title.
Moreover, the largest holder of home loans today is Fannie Mae. In its guidelines, it requires that a loan be called if the lender become “aware” of a transfer of title without the lender’s consent. The guidelines do not require the lender to take affirmative steps to scour the real estate records for transfers.5
If the lender does call the loan, the buyer will have to refinance and to replace the old mortgage. The loan documents should provide this option.
Accepting a Seller Financing Wraparound Mortgage (all-inclusive mortgage) from a risky buyer is unwise. As the seller you should qualify the buyer by requesting a credit report, financial statement, bank or investment account statements. If the buyer fails to pay, you will need to continue making payments on your old mortgage to protect your credit while you foreclose on the buyer, a process that can take several months. The buyer must repay you to avoid losing the home to foreclosure.
The Seller Financing Wraparound Mortgage docs (all-inclusive) should give the buyer the ability to deduct the amount of interest paid to the seller on the existing mortgage. Your profit is taxable at ordinary income tax rates, offset by your deduction of interest on the new mortgage.
Talk to your real estate agent about selling your home with a Seller Financing Wraparound Mortgage (all-inclusive mortgage). You may also want to consult a lawyer. Share the articles from this website with your agent and lawyer.
If you choose the Seller Financing Wraparound Mortgage (all-inclusive) option, make sure to use quality documents. DossDocs.com provides a do-it-yourself solution in all 50 states for $499 per transaction. You simply answer a few questions and receive your documents instantly. The forms are based on the Fannie Mae format, the national standard for home loans. If you make a mistake, you can re-do the documents at no cost. No registration is needed. You, your real estate agent or lawyer can use the program to get the documents you need to sell your home.
© DossDocs LLC. This article is for educational purposes only and is not legal advice. Consult a qualified lawyer before acting on any of the ideas discussed here.
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