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Subject to existing mortgage — why buy someone else’s mortgage

Subject to existing mortgage means that the investor takes on the remaining amount of the owner’s mortgage and does not use their credit score. You still have to agree on this process with the creditor (for example, represented by a bank). Buying refers to buying a home with an existing mortgage and leaving it in the previous owner’s name. This means that the new owner does not pay off the existing mortgage to the bank, as is usually done in the case of a “standard” closing. But they use the old owner’s loan, already issued long ago, in their interests.

Under the terms of the agreement, the investor continues to make payments to the bank. However, they do not have a direct agreement with the bank. Thus, the investor has no legal obligation to make payments. If the investor fails to help repay the homeowner’s loan, the homeowner faces foreclosure. But, of course, a minimal number of investors want to do the huge paperwork of buying a house and finding a client first and then lose them. Therefore, this does not happen, and the seller can sleep peacefully.

Subject to existing mortgage types

  • A straight subject to cash-to-loan: the buyer decides to pay the difference between the purchase price and the existing mortgage balance.
  • A straight subject to with seller carryback: seller or owner financing, a direct loan often taking the form of a second mortgage.
  • Wrap-around subject to: allows homeowners to override mortgage interest due to the money they expect to earn on their existing mortgage balance.

How to make a deal subject to existing mortgage

To do this, you need to draw up a contract like in the usual case. Even if the owner decides to withdraw from the transaction suddenly, you can always, within the framework of the agreement, upon reaching the conditions specified in the agreement, sue the owner and demand compensation. But, the owner who agreed to such a deal is unlikely to try to deceive you — after all, you are helping them to cover the mortgage, which they most likely cannot or does not want to pay anymore.

Subject to existing mortgage — a benefit for the investor

A logical question arises: why pay a mortgage for someone if you can take it yourself? The benefit of buying someone else’s mortgage is still there; in some situations, it is very solid.

  • This is much better than taking out a mortgage alone, especially if you don’t have any benefits and can’t qualify for a new mortgage.
  • Most real estate investors’ main reason for buying a property, “Subject to,” is to get the owner’s interest rate. Suppose the current interest rate is 7%, and the owner (due to the existence of, for example, various incentives) has a fixed interest rate of 5%. In that case, this difference of 2% can make a huge difference to the investor’s monthly payment. Only retail buyers benefit from low rates. So using someone else’s loan at a rate of 4.5 or even 5% but without the hassle of registration is an excellent acquisition.
  • Lower Barrier to Entry: As long as the financing strategy is followed, an investor can purchase a property without making the large down payment you would have to resort to if you take out a full mortgage. The down payment does not have to be 20% and sometimes reaches retail 3.5 when using an FHA mortgage subsidized by the home government.
  • You do not need a credit history to take advantage of the subject to existing mortgage. The investor may complete the purchase without a good credit history or use his loan to take on additional mortgages (and cover the owner’s mortgage, for example).
  • Often, the house requires less repair than when buying a home for sale for a long time — after all, people live there. Although they do not always have the means to maintain it in excellent condition, the costs are still lower.

Cons subject to existing mortgage

  • Mortgage conditions are subject to change: there is a possibility that the lender may call off the loan if he realizes that the house has been transferred. In this case, he may demand full mortgage payment within 30 days.
  • Credit Risk: If you don’t make timely payments, you could damage the seller’s credit history and risk losing collateral.


So, what happens with the Subject to existing mortgage? The seller in the subject of the transaction does not pay off his current mortgage but forces the new buyer to pay off his existing obligations. In its simplest form, the “subject” in the subject of a mortgage refers to a loan that is already held. When you buy a property, you are essentially buying a home with an existing mortgage — that’s all there is to it. The seller is responsible for repaying the loan, but the buyer has agreed to make mortgage payments on behalf of the original seller.

If you have mortgage questions, ask our team of experts

In matters of investment or earning money on mortgages, it is better to check all the pitfalls so as not to lose possible earnings. Contact LBC Mortgage if you want to know more and save your time and money.

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