Module 6: Advanced Strategies
Learn how to acquire properties by taking over the existing mortgage - a powerful creative financing strategy
Subject-To (or "Sub-To") is a creative financing strategy where you acquire a property subject to the existing mortgage. The seller deeds you the property, but their loan stays in place - and you make the payments.
In Plain English:
The seller gives you the house, but their mortgage doesn't get paid off. You take over making the monthly payments to their lender. The loan stays in the seller's name, but you control the property.
Seller owes $180,000 on a house worth $250,000. They need to sell quickly but don't have equity to pay realtor fees and closing costs.
You offer to take over the property and make the mortgage payments. The seller gets out from under the burden without foreclosure or bankruptcy.
The seller deeds the property to you (or your entity). You now own the property legally.
The existing mortgage is NOT paid off or refinanced. It remains in the seller's name, with the same terms, interest rate, and payment schedule.
You take over making the mortgage payments (principal, interest, taxes, insurance). You can rent it out, flip it, or hold it long-term.
If they're behind on payments, Subject-To gets them out before foreclosure ruins their credit.
Traditional buyers need down payments and financing. You're offering immediate relief with no financing contingency.
If they owe more than the house is worth, they can't sell traditionally without bringing cash to closing.
Life circumstances force them to move quickly - they just want out from under the property burden.
No Bank Financing Required
You don't need to qualify for a loan, get approved, or deal with underwriters. You're taking over an existing loan.
Lock in Low Interest Rates
If the seller's mortgage is at 3.5% and current rates are 7%, you just locked in a 3.5% loan without qualifying.
Minimal Upfront Cash
You might only need a few thousand for closing costs - no 20% down payment required.
Build Equity Immediately
If there's a spread between the loan balance and market value, that's instant equity for you.
Due-on-Sale Clause
Most mortgages have a "due-on-sale" clause that allows the lender to demand full payment if the property is sold. Technically, taking the deed triggers this. In practice, lenders rarely enforce it if payments are being made on time - but it's a risk.
Seller's Credit at Risk
The loan stays in the seller's name. If YOU miss payments, THEIR credit gets destroyed. You have a moral and contractual obligation to make those payments.
Seller Can't Get New Financing Easily
As long as that mortgage is in their name, it counts against their debt-to-income ratio. They may struggle to buy another home.
Legal & Title Issues
Subject-To deals require proper legal documentation. Work with a real estate attorney to structure these correctly. Get title insurance if possible.
Seller has a 3-4% mortgage in a 6-7% market
Property worth $250K, loan balance $180K = $70K equity
Facing foreclosure, job loss, divorce, or relocation
Your Strategy: Rent it out for $650/month cash flow. After 5 years, refinance or sell and capture the $70K equity plus appreciation and mortgage paydown.
Subject-To is an advanced strategy that allows you to acquire properties with little or no money down by taking over existing financing. It's powerful but comes with risks.
Always work with an experienced real estate attorney when structuring Subject-To deals. Protect yourself and the seller with proper documentation.
Module 6: Advanced Strategies
Taking over existing mortgages while keeping the original loan in the seller's name - a powerful tool for creative deal structuring
"Subject-To" (short for "subject to existing financing") is when you buy a property and take over the seller's existing mortgage payments, but the loan stays in the seller's name. You get the deed, they keep the debt.
Behind on payments, relocating, inherited property, divorce, job loss. They need OUT fast and have little/no equity.
Get mortgage balance, interest rate, monthly payment, lender name. Request authorization to contact lender.
Agree on purchase price (often just taking over the mortgage balance). Negotiate any cash to seller if they have equity.
Purchase agreement, authorization to release loan info, deed transfer, subject-to addendum disclosing structure.
Deed transfers to you. Mortgage stays in seller's name. You start making payments on their behalf.
You now make the mortgage payment each month (mail check or online pay). Property is yours to rent, flip, or hold.
Most mortgages have a "due-on-sale clause" that allows the lender to demand full payoff if the property is sold. Technically, subject-to triggers this clause.
Reality: Banks rarely call loans due if payments are made on time. They'd rather collect interest than foreclose. However, the risk exists, and you must disclose it to sellers.