How a subject-to deal works — deed transfers, mortgage stays
Subject-to real estate — often called "sub-to" — is one of the most powerful tools in a creative investor's toolkit. It lets you acquire a property without getting a new mortgage, by taking over the seller's existing loan. The rate, balance, and terms stay in place. You get the deed. The seller moves on.
In today's market, where rates are sitting well above 6%, the ability to step into a 2.5% or 3% loan from 2020 or 2021 is a massive advantage. You can't create that rate anywhere else. You can only inherit it through a sub-to transaction.
In a traditional home purchase, you apply for a new mortgage, qualify based on your income and credit, and pay today's interest rate. In a subject-to deal, none of that happens.
Instead, here's what happens:
The loan stays in the seller's name. The deed transfers to you. This is what makes sub-to different from every other acquisition strategy — and why it requires trust, communication, and a solid agreement between both parties.
This is the first question most people ask. The answer is simpler than you'd think: sellers in certain situations care more about speed and relief than maximizing their sale price.
In each case, the seller gets what they actually need: a clean exit, fast, with no commissions and no open houses.
Existing loan balance: $135,000 at 2.75%
PITI payment: $1,210/mo
Market rent: $1,550/mo
Entry fee: $20,000
ARV: $210,000
Cash flow after basic expenses: ~$240/mo
Equity at entry: ~$55,000
Rate you'd pay today on a new loan: 6.5%+
The math is straightforward. You're acquiring $210K of real estate for $20K cash. You're locking in a payment of $1,210/mo that can't be replicated with new financing. And you're cash flowing from day one.
Every mortgage has a due-on-sale clause — a provision that technically allows the lender to call the loan due if ownership of the property transfers. This is the most-discussed risk in sub-to transactions.
In practice, lenders rarely invoke this clause as long as payments are being made consistently. Banks are in the business of receiving payments, not managing properties. A loan performing perfectly is the last thing they want to disrupt.
That said, investors should understand this risk exists, work with a creative finance attorney, and have a plan for what happens in the unlikely event a lender does call the loan.
The fastest way is to work with a disposition company that specializes in creative finance deals — like Terms For Sale. We source, underwrite, and package sub-to deals so investors can evaluate them without doing the heavy lifting of finding motivated sellers.
Other ways to find sub-to deals: direct mail to pre-foreclosure lists, driving for dollars in distressed neighborhoods, probate leads, and building relationships with divorce and estate attorneys.
We source off-market sub-to deals across AZ, TX, FL, KY and more. Entry fees from $15K. Rates as low as 2.5%.
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