Investors
How does seller financing or a subject-to deal work?
By Steve Lockhart
The short answer
With seller financing, the seller holds the note and you repay them over time, like a bank would: a down payment, an interest rate, a term, and monthly payments, all written into a promissory note secured by the property.
Full answer
With seller financing, the seller holds the note and you repay them over time, like a bank would: a down payment, an interest rate, a term, and monthly payments, all written into a promissory note secured by the property. The seller typically benefits from a larger pool of qualified buyers and possibly a better return than they would get from a bank account; you benefit from a path into a property with less money down and often more negotiable terms. The structure is only as good as the written agreement and the title work behind it.
A subject-to deal is different: you take title to the property, but the seller's existing mortgage remains in place and you keep making the payments on it. There is no new loan and often very little cash down, which is the appeal. The risk is that the loan stays in the seller's name, so your payment record, a missed payment, or a lender exercising a due-on-sale clause can all have consequences for someone else's credit and for your ownership, which is why subject-to is a specialist structure, not a default one.
Both approaches come with real contract and legal considerations: taxes, insurance, title, senior liens, what happens in default, and who holds the risk if the market changes. I am not an attorney and I do not draft or judge these agreements. Before you sign anything, have a real estate attorney and a title professional review the note, the deed, the existing loan documents if there are any, and the recorded title so you know exactly what you are taking on.
A note from Steve: nothing on this page is investment, legal, or tax advice. Markets move, and every property is different. Run your own numbers on the specific deal, and talk to your CPA and attorney before you commit.
Go a little deeper
Frequently asked
Questions investors often follow up on
Why would a seller agree to finance the sale?
Sellers agree for several reasons: they may want a stream of income from the note, they may struggle to attract conventional buyers in a slow market, or they may be willing to accept a slightly lower price in exchange for a better return over time. The seller's motivation shapes the terms you can negotiate, so it is worth understanding before you structure an offer.
What is a due-on-sale clause?
It is a provision in many mortgages that lets the lender demand full repayment if the property is transferred without the lender's consent. In practice enforcement varies, but in a subject-to deal it is a real risk to understand, because the loan stays in the seller's name and the lender retains the right to call it due.
Do I need an attorney for seller financing or a subject-to deal?
Yes, and a title professional too. These structures are built on documents, recorded title, and state law, not on a handshake. An attorney reviews the note and deed, confirms the terms in writing, and a title professional verifies there are no prior liens or claims that could threaten your ownership.
The Lockhart Method
The Lockhart Method
Your Home | My Strategy | Proven Results
My strategy: we treat seller financing and subject-to as real options that deserve the same underwriting as any purchase, with the contract and title risk reviewed by professionals before we commit. The structure should lower your risk and your cash needs together, never trade one for the other in silence.
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