Subject-To's vs. Wraparound Mortgages - What is the difference?

[Jennifer Griner]

Many investors have asked me to explain the difference between "Subject-Tos" and "Wraparound Mortgages."

Both are very useful types of financing that can help you get a deal done when conventional financing isn't possible, without having to use expensive hard money.

Subject-To's (short for "Subject To the Existing Financing") are deals where the buyer purchases a property subject to the existing mortgage. The buyer will acquire the property and take over the payments of the existing mortgage. The seller and buyer will make an agreement and the seller will hand over the payment booklet to the buyer. There is no new mortgage. Subject-To's are often used when the seller is behind on their mortgage.

In other words, when you purchase a home subject to real estate, you are responsible for the payments on the loan. The seller will deed the property over to you, so you will officially be the owner of the home, but the mortgage will stay in the seller's name.

You are offering them a way to sell the home, pass the loan to you, and take some cash away from the deal. They will have concerns about their liability for the loan, so you may have to set up a payment system that allows them to monitor your prompt payments. You can also assure them that your investment, the down payment, is something you don't want to lose by going into default.

What should you be aware of?



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