Subject-to calculator
Taking over a seller's mortgage payments? See the cash you need, the payment you take over, your equity and cash flow, and how it compares with a new loan.
What this answers: If I take over the seller's mortgage payments, how much cash do I need, and how does it compare with getting a new loan?
How this deal works: The seller gives the buyer the deed, but their mortgage stays in place and in their name. The buyer makes the payments from then on, often keeping a low rate from years ago.
Start from an example, then change any number:
Due-on-sale risk: the lender can demand the full $200,000 once the deed changes hands. It's a risk, not a crime, but have a plan to pay it.
You'd need $23,000 to close and take over a $948.42 monthly payment, $164.02 a month less than a new loan at today's rate. After costs, the rent leaves $651.58 a month.
You'd get $20,000 in cash. But the $200,000 loan stays in your name for up to 25 more years. If the buyer stops paying, it hurts your credit, not theirs.
Subject-to vs a new loan
Buying for the same $220,000 with a new 30-year loan at 6.5% and 20% down.
| Measure | Subject-to | New loan |
|---|---|---|
| Cash to close | $23,000 | $50,600 |
| Monthly payment | $948.42 | $1,112 |
| Monthly cash flow | $651.58 | $487.56 |
| Cash-on-cash return | 34.0% | 11.6% |
- Subject-to · 3%$948.42
- New loan · 6.5%$1,112
What could go wrong
The lender can call the loan due. Almost every mortgage has a due-on-sale clause: once the deed changes hands, the lender may demand the full $200,000. It's a risk in the loan contract, not a law the buyer breaks, and lenders often don't act while payments arrive on time. But if one does, the buyer must refinance, pay it off or sell.
The seller's credit is on the line. The loan stays in the seller's name. If the buyer pays late or stops, the late payments and any foreclosure go on the seller's credit report, and the seller may struggle to get a new mortgage while this one is open.
Insurance and escrow changes. The home needs a new insurance policy for the new owner. If the policy lapses, the lender can add costly insurance of its own, and an escrow shortage can raise the payment.
Before you sign
- Get the latest loan statement and confirm the balance, rate, payment and any missed payments.
- Get a title search and title insurance, and check for other liens and unpaid taxes.
- Pay through a loan servicing company or give the seller online access, so both sides can see every payment.
- Set up new insurance in the buyer's name that lists the lender.
- Keep cash or a plan to refinance ready in case the lender calls the loan due.
- Check your state's rules on buying homes in foreclosure. Some states have strict ones.
- Buyer and seller should each have their own real estate attorney.
This is not legal or tax advice. The rules for these deals vary by state. Have a real estate attorney review the contract before you sign.
How this is calculated
- 1Price = loan balance + missed payments caught up + cash to the seller.
- 2Cash to close = cash to the seller + missed payments + closing costs.
- 3Payment taken over = balance × r ÷ (1 − (1 + r)−n), where r is the loan's rate ÷ 12 and n is the years left × 12.
- 4Equity on day one = home value − loan balance.
- 5Cash flow = rent − payment − property tax ÷ 12 − insurance ÷ 12 − other costs. Cash-on-cash = cash flow × 12 ÷ cash to close.
- 6New loan: the same price with a 30-year loan at the rate you enter (this week's Freddie Mac average when we have it). Cash to close = down payment + closing costs %.
Assumes the loan has a fixed rate and is current once caught up. Escrow, mortgage insurance, rate changes on adjustable loans and selling costs aren't included. This is not legal or tax advice: subject-to deals carry real risks for both sides and rules vary by state, so each side should have a real estate attorney review the contract.
Words to know
- Subject-to
- Buying a home "subject to" the existing mortgage: the deed goes to the buyer, the loan stays in the seller's name, and the buyer makes the payments.
- Due-on-sale clause
- A line in most mortgages that lets the lender demand the full balance once the home is sold or the deed changes hands.
- Deed
- The document that transfers ownership. In a subject-to deal the buyer gets it at closing.
- Catching up (reinstatement)
- Paying the missed payments and late fees so that the loan is current again.
- Equity
- What the home is worth minus what's owed on it.
- Cash flow
- Rent left after the loan payment, taxes, insurance and other costs.
- Cash-on-cash return
- A year of cash flow divided by the cash you put in, as a percent.
- Escrow account
- Money the lender collects with each payment to pay the property tax and insurance.
- Loan servicing company
- A company that collects payments and keeps records, so both sides can see the loan is paid.
Frequently asked questions
- What does buying subject-to mean?
- The buyer gets the deed, but the seller's mortgage stays in place and in the seller's name. The buyer makes the payments. It's often used to keep a low rate or to help a seller who is behind on payments.
- Is buying subject-to legal?
- In general, yes: taking over payments isn't a crime. But it can trigger the loan's due-on-sale clause, which lets the lender demand the full balance, and some states regulate buying homes in foreclosure. Have an attorney review the deal.
- What is the due-on-sale clause?
- A line in most mortgages that lets the lender call the whole loan due when the property is sold. It's a right the lender may use, not a law the buyer breaks. Many lenders don't act while payments arrive on time, but they can.
- What are the risks for the seller?
- The loan stays in their name. If the buyer pays late or stops, the seller's credit takes the hit, and an open mortgage can make it hard for the seller to get a new one.
- Why not just get a new loan?
- A loan taken out a few years ago may have a much lower rate than today's, and taking it over needs little cash and no loan approval. This calculator shows how much that saves next to a new loan.
- Who pays the property taxes and insurance?
- The buyer, now that they own the home. If the loan has an escrow account, they're paid through the monthly payment. The insurance needs a new policy in the buyer's name that lists the lender.