Quote:
Originally Posted by underscore
I've never dealt with the situation, but isn't subject to sell kind of subject to finance too? Assuming the offer is based on what the buyer thinks their current place will sell for, if they end up selling for less than they thought could they fall short on their offer?
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I understand why and where you are asking the question, but the two subjects (sell and finance) are not one and the same.
The subject to sale indicates you have equity tied up in an existing mortgage/property. Say the condo you are selling is worth $650,000 on the market (let's assume it's fair market value.) You list it on the market, and it sells, asking price. And let's assume you made a pretty penny off of the property, let's say $250,000 after agent and legal fees etc. You have $250K + whatever money you originally put down as your initial down payment (let's say $50K for sake of argument, I'm not doing math at this time of day) for a total of $300,000 in equity.
Okay, so now you have $300K in cash. That's pretty juicy. But let's say you aim for a house that's asking $2.5M and you and your spouse have a combined household income of only $140,000. The bank is going to want to see a much bigger down payment, and determine your creditworthiness, and ability to meet your monthly mortgage payments, and so forth. The bank is going to want to protect themselves by ensuring you can pay them back, and that this $2.5M house is really worth $2.5M on the market and for years to come. That and they want to know that the foundation isn't going to sink the moment you step foot on the front door, or the roof isn't going to collapse the next snow day etc. The list goes on, but given the scenario I just shared, the bank is going to tell you to fuck right off and laugh you out the door. If you don't put a subject to financing in there, you make an offer on the house of $2.5M, you better have a rich uncle to lend you that money. Not many banks are willing to let you have two mortgages at once without a very good reason, hence the subject to finance.