What is Subject-To Financing?
Subject-to financing means purchasing a property "subject to" the existing mortgage remaining in place. The seller transfers the deed to you, giving you ownership, but the original loan stays in the seller's name. You take over making the monthly mortgage payments. The seller's credit is still tied to the loan — if you stop paying, it affects them.
This strategy became extremely popular in 2023-2026 because of the interest rate environment. Millions of homeowners locked in 2.5-4% mortgage rates during 2020-2021. Today's rates are 6.5-7.5%. Taking over a 3.5% mortgage instead of getting a new 7% loan can save $300-$500/month on the same property — dramatically improving cash flow and DSCR.
How a Subject-To Deal Works
Step 1: Find a motivated seller with an existing mortgage at a favorable rate. Step 2: Negotiate the purchase price and any cash to the seller (their equity minus the loan balance). Step 3: The seller signs the deed over to you. Step 4: You begin making the mortgage payments directly to the lender. Step 5: The seller's name stays on the mortgage until you refinance or sell.
The Due-on-Sale Clause Risk
Every conventional mortgage has a due-on-sale clause that technically allows the lender to call the loan due if ownership transfers. This is the primary risk of subject-to deals. However, in practice, lenders rarely enforce this clause as long as payments are current — they want performing loans, not foreclosures. That said, the risk is real and should be understood by both buyer and seller. Always consult a real estate attorney.