What is “Subject To” Financing?

“Subject To” Financing is one structure under the larger umbrella of Creative Financing, and in short, far more homeowners and buyers can use it than most people realize. 

It’s important to remember that like any other Creative Financing structure, Subject To can be implemented so that all of the following are true:

1. Proper third-party title and escrow channels are used to manage and record the transaction,
2. Realtor commissions are protected (and often increased), and
3. Sellers are protected with simple recourse written into their contracts.

A good investor will want to establish a positive and long-lasting relationship respecting you as a professional and protecting your interests while providing your seller with more options. 

What is Subject To Financing?

The term “Subject To” is shorthand for Subject To Existing Finance Terms on an existing mortgage secured by the home being sold. It’s often understood as a buyer taking over the payments on an existing mortgage, and while there are more moving parts behind the scenes, that is a pretty good representation.

There are a variety of reasons, Subject To financing might be used. One growing factor is today’s shifting mortgage market. Most sellers own their home and pay on a mortgage they closed with historically low-interest rates and under much more favorable terms than their buyer could find today.

Who Uses “Subject To” Financing?

It can be used between one private seller and another private buyer, two investors, or some combination of an investor working with a private home buyer or seller.

Outside of interest rate considerations in today’s mortgage market, many sellers considering “Subject To” do so, because it offers a creative solution to a lack of equity. Sellers may not have enough equity to complete a sales process and pay commissions and closing costs. Maybe they bought using a Down Payment Assistance program, or low down payment commitment mortgages like VA & USDA. These can be great programs to help buyers get into houses, but if they need to sell or move too soon, or the housing market slows, they may not have the equity they need to sell. 

“Subject To” Financing offers a solution for them to sell, and maybe even pull out equity that would have otherwise been tied up by closing costs in a traditional sale.

Subject To Financing as Part of a Hybrid Sale

Hybrid Financing combines Seller Financing & Subject To Financing when a seller has some combination of equity built and remaining debt in a mortgage, tax lien, or another form. 

Subject To Financing provides the seller with an option to have their existing mortgage paid off under existing terms and still benefit from a Seller Finance structure with terms they control to increase their return on the equity they have built.

Final Thoughts

Every seller is different, and some will require more creativity than others. Subject To Financing is one tool, you can leverage to give your sellers more options and more control. 

When you use tools like this to solve complex problems for your sellers, you deserve to be recognized and compensated for that expertise. We will always protect your commissions, and we’d love to see them increased (or even doubled) when possible. 

Your clients are lucky to have a life-long learner like you in their corner, and we’re working to support you with resources and solutions to keep that going. 

We’d love to connect soon, either to answer specific questions, direct you to particular content, or just start a conversation to see how we can help.