Glossary
Subject to (buying subject to the existing mortgage)
Buying subject to means you take title to the house while the seller's existing mortgage stays in place and in the seller's name. You make the payments, but the loan is not formally assumed.
Investors use subject to when a seller has little equity or a low rate. It is a creative structure, often paired with seller financing for the seller's equity.
How it works
- The seller deeds the house to you.
- The existing loan stays in the seller's name.
- You make the payments, often through a servicing company so both sides can see them.
- You sell or refinance later, which pays the old loan off.
- Price agreed
- $240,000
- Existing loan balance kept in place
- $205,000
- Cash to the seller for equity
- $35,000
- Existing payment (PITI)
- $1,420
Illustrative only. Still subtract vacancy, repairs and management.
The risks
- Due-on-sale clause. Most mortgages let the lender call the loan due when title transfers. Lenders do not always act on it, but they can.
- Seller's credit. A missed payment hits the seller's credit, which is why many deals use a servicer.
- Insurance and title. The policy and the deed need to be set up correctly for the new owner.
Model the payment and cash flow in the rental property calculator.
Questions
Is buying subject to legal?
Generally yes, but it can trigger the due-on-sale clause in the seller's loan, and some states regulate it. Use a real estate attorney.
What is the difference between subject to and an assumption?
In an assumption, the lender approves you and you take over the loan. With subject to, the loan stays in the seller's name.
Written by Austin Frangoules | Updated
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