Why Real Estate Agents Should Learn Subject-To Deals
‘Subject-to’ is a type of real estate transaction where the buyer takes over the seller’s existing mortgage.
NOTE: This is not the same as assuming a mortgage. AND it’s completely legal. Here’s how it works…
When you see a situation that can’t be resolved using traditional financing, like John’s, one of the creative options I turn to first is subject-to. These types of deals let real estate agents offer solutions to clients in difficult financial situations, or those with properties that have little to no equity, like we talked about above. A subject-to transaction could be an ideal solution for John, because it gives him the unique opportunity to move without having to worry about selling his home at a loss or bringing money (that he was planning on using somewhere else) to the table at closing.
In a subject-to transaction, your buyer agrees to take over John’s existing mortgage payments, while the mortgage stays in John’s name. The buyer receives the deed to the property, essentially gaining control and ownership, but the original financing agreement stays intact. This means that John can essentially “sell” his home without having to pay off the entirety of his mortgage immediately. Instead, the buyer steps in, taking over the mortgage payments. This allows John to move as required for his job without having to pay out of pocket or wait for the “right” buyer.
From the buyer’s perspective, a subject-to deal can also be appealing, especially if they can’t qualify for a conventional mortgage due to bad credit or the inability to save for a hefty down payment. They can get into the home with potentially less money down, at the lower interest rate John locked in with the bank a year ago AND without the need to secure a new mortgage. This is different from assuming a mortgage where a buyer transfers a mortgage and a title into their name because the mortgage stays in the name of the original borrower, but the title is transferred to the new buyer’s name. The payment is made by the new buyer in the name of the seller.
In a slow market, where the seller might struggle to find a buyer who can meet their asking price, this can be a win-win solution for both parties. As a real estate agent, understanding
how to guide your sellers to solutions they couldn’t find otherwise lets you close significantly more deals and better serve your clients. This flexibility can help to close deals more quickly and effectively. And, if you don’t know how to structure deals, what contracts to use in these scenarios, or need a partner to bring deals to you, you can join the SubTo community and make your life 10x easier (all while padding your wallet and helping clients).