Subject-to is a way of buying real estate where you take title to the property but leave the seller's existing mortgage in place, in the seller's name, and keep making the payments on it. The deed transfers to you, but the loan does not get paid off or refinanced, so the bank's lien stays attached to a debt the seller still legally owes.
The name is short for “subject to the existing financing.” You own the house; the financing rides along underneath it. That is the appeal and the danger in one sentence.
In practice
Say a seller owes $260,000 on a 30-year loan at 3.5%, with a payment of about $1,167 a month for principal and interest. The house is worth $300,000. In a subject-to deal, you agree to buy it for $300,000: you pay the seller $40,000 for their equity, you take the deed, and you keep paying the $1,167 every month on the loan that is still in the seller's name. You did not get a new mortgage, you did not pay closing costs on a refinance, and you inherited a 3.5% rate that no lender is writing today.
The catch is that the loan never moved. The bank still shows the seller as the borrower, the payment history posts to the seller's credit, and if a payment is late, it is the seller's name that takes the hit. You are responsible by handshake and a purchase contract, not to the bank.
Why it matters to a small landlord
Subject-to gets pitched as a cheap way to acquire a rental with a low rate and almost no cash, and the math can look great on the rent roll. The risk that does not show up on the spreadsheet is the lender. Almost every residential mortgage carries a due-on-sale clause, which lets the bank demand the full balance the moment the property changes hands without their consent. A subject-to transfer is exactly that kind of change. The bank rarely notices while payments arrive on time, but a missed payment, an insurance change, or a recorded deed can trigger a call for the entire balance with little warning.
If you are weighing this against a cleaner structure, read how seller financing works, since it keeps you and the seller on the same page about who owes what. Either way, model the deal on real numbers before the rate tempts you: a low payment does not save a property whose loan can be called.
This is an advanced play with a live tripwire, not a starter move. If you do it, understand the due-on-sale clause you are betting against, price the equity you are paying the seller for, and know how it differs from seller financing, where the seller becomes your actual lender instead of a borrower you are quietly standing behind.