What does "subject to" mean in a real estate financing context?

In real estate financing, the term "subject to" refers specifically to a situation where a buyer acquires property while taking over the existing mortgage payments without formally assuming the loan. This means that the original borrower remains liable for the mortgage, but the buyer will begin making the payments. This arrangement allows the buyer to take control of the property and benefit from the existing financing terms, which may include a lower interest rate or favorable repayment schedule compared to current market conditions.

This method is attractive for buyers looking for alternative financing options, especially if they do not qualify for a new loan or want to avoid high borrowing costs. The original lender is typically not notified of the transfer, but the existing agreement remains in effect between the original borrower and the lender. This distinction is important because it allows the buyer to leverage the existing financing structure while also exposing the original borrower to potential risks regarding the loan's outcome.

Other choices do not capture this nuance accurately. For example, in a scenario where the buyer assumes all debts, they effectively become legally responsible for the loan, which differs from a "subject to" arrangement. Similarly, a purchase agreement involving cash only does not involve taking over financing at all, while a legally binding offer to purchase real estate, while important, does