What are examples of subject to deals?

Subject-to deals, also known as subject-to existing mortgage or simply subject-to, are a creative and increasingly popular method of real estate investing. They offer a unique opportunity for both buyers and sellers to achieve their respective goals in a mutually beneficial way. In this article, we will explore what subject-to deals are and provide some examples to illustrate how they work.

At its core, a subject-to deal involves a buyer purchasing a property “subject to” the existing mortgage. This means that the buyer takes over the mortgage payments, but the original seller retains the legal ownership of the property until the mortgage is paid off. Essentially, the buyer steps into the shoes of the seller and assumes responsibility for the mortgage without formally assuming the loan.

One common scenario where subject-to deals are used is when a homeowner is facing foreclosure or financial distress. Instead of going through the lengthy and often damaging foreclosure process, the homeowner can sell the property subject to the existing mortgage. This allows them to avoid foreclosure, protect their credit, and potentially walk away with some equity.

For example, let’s say John is behind on his mortgage payments and is at risk of losing his home to foreclosure. He owes $200,000 on his mortgage, but the current market value of his property is $250,000. Jane, an experienced real estate investor, approaches John and offers to buy his property subject to the existing mortgage. John agrees, and Jane takes over the mortgage payments. She now has the opportunity to bring the mortgage current and potentially sell the property for a profit down the line.

Subject-to deals can also be advantageous for buyers who may not qualify for traditional financing or have limited funds for a down payment. By assuming the existing mortgage, buyers can avoid the need for a new loan and the associated costs. This can be particularly attractive for real estate investors looking to acquire properties with little or no money down.

Consider another example: Sarah, a first-time homebuyer, falls in love with a property listed for $300,000. However, she doesn’t have enough cash for a down payment or the credit history to secure a mortgage. Luckily, the seller is open to a subject-to deal. Sarah agrees to take over the existing mortgage of $250,000, and the seller is relieved of the financial burden. Sarah now has a home without needing to qualify for a new loan or pay a hefty down payment.

It’s important to note that subject-to deals should be approached with caution and a thorough understanding of the risks involved. While they can offer great benefits, there are potential pitfalls that buyers and sellers must be aware of. For instance, if the buyer fails to make the mortgage payments, it could negatively impact the seller’s credit and potentially lead to foreclosure.

In conclusion, subject-to deals provide a unique opportunity for buyers and sellers to achieve their respective objectives in the real estate market. Whether it’s helping distressed homeowners avoid foreclosure or enabling buyers to acquire properties with limited funds, subject-to deals offer flexibility and creative solutions. However, it is crucial to approach these deals with caution and seek professional advice to ensure a successful and mutually beneficial transaction.