"Subject-to" is short for buying a house subject to the existing financing. The buyer takes ownership of the house and takes over making the payments on your current mortgage, but the loan itself is not paid off and stays in your name.
How it works
- You and the buyer sign a purchase agreement that spells out the price, the payments the buyer takes over, and anything paid to you.
- A title company handles closing. The deed transfers to the buyer. If the loan is behind, the past-due amount is usually brought current at closing.
- After closing, the buyer makes the monthly mortgage payments and is responsible for the house, taxes and insurance.
Why sellers choose it
- You can sell even with little or no equity, without bringing money to closing.
- No agent commissions, and the buyer usually pays closing costs.
- A past-due loan can be brought current, which may help you avoid a foreclosure.
- It can close quickly and on your schedule.
The risks, honestly
The loan stays in your name
Your credit report will still show the mortgage. If the buyer stops paying, your credit is hurt and the lender could foreclose. That makes it critical who you sell to and how the payments are tracked.
The due-on-sale clause
Most mortgages include a "due-on-sale" clause. It lets the lender require the full loan balance to be paid if the property is transferred without its consent. Lenders don't often use it when payments are current, but they have the right to. Your agreement should say in writing what the buyer will do if that happens, such as refinancing or selling the property to pay off the loan.
Insurance and future loans
The homeowner's insurance must be set up correctly after the sale. Because the mortgage still counts as your debt, it may also affect your ability to qualify for a new mortgage until the loan is paid off or refinanced.
How to protect yourself
- Have your own real estate attorney review the agreement before you sign.
- Close through a licensed title or escrow company, not a kitchen-table signing.
- Ask for payments to be made through a third-party loan servicing company, or for online access so you can confirm every payment.
- Make sure the agreement covers insurance, the due-on-sale clause, what happens if a payment is missed, and when the loan will be paid off or refinanced.
- Never pay anyone an upfront fee to "save" your home.