Subject-To
Buying a property 'subject to' the existing mortgage — the deed transfers but the loan stays in the seller's name.
Definition
Subject-to (Sub2) is a creative financing strategy where a buyer purchases a property and takes title (deed), while the seller's existing mortgage remains in place — in the seller's name, with the original terms. The buyer makes the monthly payments on the seller's loan, but the loan is never formally assumed or refinanced.
Subject-to is powerful when sellers have low-rate mortgages (like those originated during 2020–2022) that buyers want to inherit, or when buyers want to acquire properties without qualifying for new financing. It also provides sellers a fast exit when they can't sell conventionally due to equity, condition, or timeline.
Key risks: the 'due on sale' clause in virtually all conventional mortgages technically gives the lender the right to demand full repayment if the property is transferred. In practice, lenders rarely call loans current in payments, but the risk exists. If the investor stops making payments, the seller's credit is damaged. Subject-to requires trust, proper disclosure, and solid legal documentation.
Related Terms
Assumable Mortgage
A home loan that can be transferred from the seller to the buyer, keeping the original terms.
Seller Financing
A transaction where the seller extends credit to the buyer, eliminating the need for a traditional bank loan.
Owner Financing
A transaction where the seller acts as the lender — providing financing directly to the buyer.
Note (Promissory Note)
A written promise to repay a loan — the legal document that evidences the debt in real estate financing.