What is the use of subject to in real estate house sales?

Subject To in Real Estate Sales Explained

Selling on Terms

In the context of real estate investing, the term “subject to” refers to a property that is sold “subject to” an existing loan. This means that the buyer agrees to take over responsibility for making the mortgage payments, while the seller retains the deed to the property until the loan is paid off. Subject to mortgage is a related term that pertains to a purchase arrangement where the buyer agrees to allow the mortgage on the property to remain in place. A subject to real estate contract is a legally binding document that outlines the terms of the sale, including the property address, buyer and seller names, purchase amount, transaction date, and any special conditions. It is crucial to conduct thorough research on subject to properties, typically distressed properties such as foreclosures or short sales. There are different ways to structure a subject to deal, such as paying the difference between the purchase price and the loan amount in cash, financing the difference with seller financing, or utilizing an interest wraparound mortgage. If you are a real estate agent assisting in a subject to transaction, you should perform due diligence on the property, gather information from the seller, determine the property’s value, and prepare legal documents for both initial and final stages of the deal.

Key Takeaways:

  • Subject to in real estate refers to a property sold with an existing loan that the buyer agrees to take over responsibility for.
  • Thorough research is essential when dealing with subject to properties, typically distressed properties.
  • Different ways to structure a subject to deal include paying the difference in cash, seller financing, or an interest wraparound mortgage.
  • Real estate agents assisting in subject to transactions should perform due diligence and prepare necessary legal documents.
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What is “Subject To” in Real Estate Investing?

In real estate investing, a “subject to” deal occurs when a property is purchased “subject to” the current mortgage. The buyer agrees to make the mortgage payments going forward, while the seller remains liable for the loan. This type of deal allows you to take ownership of the property and benefit from any improvements or rental income, while avoiding the need to secure a new mortgage. The seller benefits by transferring the mortgage responsibility and potentially avoiding foreclosure or bankruptcy.

It is important to note that a “subject to” deal is different from a mortgage assumption, where the buyer assumes full responsibility for the mortgage. The three types of “subject to” deals are cash-to-loan, seller carryback, and wrap-around. Cash-to-loan involves the buyer paying the difference between the purchase price and the loan amount in cash. Seller carryback involves the seller financing a portion of the purchase price. Wrap-around deals involve you paying interest on the original mortgage in addition to the purchase price.

These deals offer benefits such as buying properties at a discount, assuming low-interest rate mortgages, and closing quickly. By leveraging the existing mortgage, you can invest in real estate without the need for traditional financing, allowing for greater flexibility and potential profitability.

Benefits of “Subject To” Real Estate Investing

Subject to deals present several advantages for investors:

  • Buying properties at a discount: In a subject to deal, properties are often acquired below market value, enabling you to generate immediate equity.
  • Assuming low-interest rate mortgages: By keeping the existing mortgage in place, you can take advantage of favorable interest rates set by the original loan.
  • Closing quickly: Since no new financing is required, subject to deals can be completed faster than traditional purchases, allowing you to secure desirable properties in a competitive market.
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These benefits make subject to real estate investing an attractive option for those looking to enter the market or expand their investment portfolio.

Benefits and Risks of “Subject To” Real Estate Deals

Subject To in Real Estate Sales Explained Bridgetown Home Buyers

“Subject to” real estate deals offer several benefits for both buyers and sellers. Buyers can acquire properties at a steep discount, assume low-interest rate mortgages, purchase with little or no money down, and close quickly. Sellers can avoid foreclosure or bankruptcy, sell their properties quickly, receive upfront payments, and avoid repair or renovation costs.

However, there are risks involved. Buyers may face foreclosure if they can’t make the mortgage payments, and sellers may be liable for the mortgage if the buyer defaults. The due-on-sale clause in mortgages poses a risk to both parties, although lenders often don’t enforce it.

Sellers need to consider the loss of their home, while buyers need to be aware of potential loan acceleration and difficulty in insuring the property. It’s important to thoroughly evaluate the risks and benefits before entering into a “subject to” deal.


Subject to real estate deals can be a valuable tool for investors and sellers in certain situations. They provide opportunities to purchase properties without needing a traditional mortgage and offer flexibility in terms of financing.

However, it is important to be aware of the risks involved. Sellers may face the potential for foreclosure or be liable for the mortgage if the buyer defaults. Buyers must consider the risk of loan acceleration or difficulty in insuring the property, as well as the responsibility of making mortgage payments.

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Before entering into a subject to deal, it is crucial for both buyers and sellers to carefully evaluate the benefits and risks. Consulting with a real estate attorney or professional can provide guidance and ensure the transaction is conducted legally and properly.

In the right circumstances, subject to real estate deals can be a viable option. However, it requires thorough evaluation, understanding of the associated risks, and proper legal guidance to ensure a successful outcome.