SubTo means the buyer takes over the seller's existing mortgage payments without formally assuming the loan. It's the most powerful tool in creative finance when the seller has a low interest rate and high equity isn't on the table.
Title transfers to the buyer. The mortgage stays in the seller's name. The buyer makes the monthly payments going forward. The seller walks away from their housing payment without selling for cash they don't need.
SubTo lights up when the seller has a sub-6% interest rate (anything from the 2020-2021 era), modest equity, and no urgent need for a lump sum. Today's rates make their loan more valuable than the equity could ever be in cash.
Most SubTo deals have an entry fee — money paid to the seller at closing to make the deal worth their while. Rinsed targets entry fees under 5% of ARV. Higher than that and you're effectively buying equity instead of taking over a payment.
HOAs can foreclose on the property if dues lapse, even if the mortgage is current. Always verify HOA status. SubTo deals with messy HOA situations should be passed unless you can negotiate them clean.
The due-on-sale clause is the elephant in the room. The lender can technically call the loan. In practice this rarely happens — banks just want their money, and the loan keeps performing. But you need a plan if it does (refinance, sell, or pay off).
SubTo means the buyer takes over the seller's existing mortgage payments without formally assuming the loan. It's the most powerful tool in creative finance when the seller has a low interest rate and high equity isn't on the table.
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