208-231-1944 zane@zanegraser.com

What is a Subject-To?

A Subject-To is when someone takes over an existing mortgage and keep the current terms in place. This is especially great in today’s market with the higher interest rates in which someone can keep someone’s existing mortgage with lower interest rates between 2%-5% to keep costs down. It can give you options to structure a deal that is win/win for all parties involved. Here are a few examples:

– The buyer can keep the existing mortgage in place with a lower interest rate. It keeps the monthly mortgage payments lower than in today’s market where interest rates are anywhere from 6%-10% interest.

– The buyer can avoid going through the entire loan process as if they are purchasing a property. It is easier to just transfer ownership of the property from the seller to the buyer.

– It can benefit the seller if they want to sell their property quickly without having to wait a month or longer for the new buyer to get a new loan in place.

– The buyer can keep the existing equity in the property unless it is negotiated that the buyer will pay the difference out of pocket from the mortgage to the agreed upon purchase price.

These are some simple examples of what a Subject-To can be beneficial for. It can be a creative strategy for investors wanting to acquire properties more quickly at discount by simply taking over the mortgage and transferring ownership. It is great for a fixer upper with the goal to sell the property within a few months and avoid going through the entire loan process for a fixer upper loan only to sell it in a few months. It is also a great way to pick up properties with lower interest rates and rent them out with sufficient equity in the property if any.

Before doing a Subject-To, it is important to know the “Due on Sale Clause” with the lender holding the mortgage. Some banks do not allow Subject-To or transfer of ownership without prior approval. Make sure you reach out to the lender first and provide appropriate paperwork to approve the Subject-To. If the lender finds out the ownership was transferred without their consent, they can declare a “Due on Sale Clause” and request the entire mortgage balance due immediately.

Also, note that doing a Subject-To is NOT the same thing as seller-financing in which the seller finances the property. With seller-financing, the seller may have an existing mortgage in place which stays in their name while the new owner pays the seller instead of the lender as the new owner. Seller-financing is a great option if the lender does not allow transfer of ownership to avoid the “Due on Sale Clause.”

There are many creative strategies out there if you know how to utilize it correctly!

***Be an Overcomer!***