How to Underwrite a Subject-To Deal (A Simple Stoplight Method)

"Subject-to" means buying a property while the seller's existing mortgage stays in place. Whether it makes sense depends on a few numbers you can collect in one call. This is a framework for screening, not legal advice. Structures like this carry real risk and are regulated differently by each state.

The three numbers that matter most

Number	Why it matters
Loan balance ÷ value (LTV)	Subject-to is most interesting when the balance is close to the value, because the seller has little equity and a cash offer won't work. A big equity gap usually points to another structure (cash or seller financing).
Monthly carry (PITI + HOA)	This is what you take on each month.
Market rent (or end-buyer payment)	If rent doesn't cover carry, you're feeding the property every month.

A stoplight you can set yourself

Pick your own thresholds based on your market and exit. For example: LTV at or above your "green" line plus rent covering carry means worth a call on subject-to. LTV in a middle band means negotiate. Big equity means red for subject-to (look at cash or seller financing instead). Write the thresholds down so every lead is judged the same way.

Free tip: separate "unknown" from "bad." A lead with no mortgage info isn't a red lead; it's an unknown lead. Most mistakes in screening come from treating missing data as a no.

Verify before anything is signed

Payoff statement and payment status (any arrears?)
Whether taxes and insurance are escrowed
Everyone on title, and any liens or judgments
The loan's due-on-sale clause and how your attorney handles that risk
Insurance setup and servicing arrangements, through a local attorney and title company

Free underwriting prompt

Act as a conservative underwriter. Use ONLY these inputs and my thresholds, and show your math.
Inputs: value [ ], balance [ ], PITI [ ], HOA [ ], rent [ ]
Thresholds: subject-to green if LTV >= [ ]% and rent >= carry; yellow if LTV >= [ ]%; else red.
Return: LTV, carry, rent coverage, light, and which missing inputs would change the answer.

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FAQ

Is subject-to legal?
Subject-to transactions are used in many states, but rules, disclosure requirements and lender due-on-sale risk vary. Use a local real estate attorney and title company.

What LTV makes subject-to worth a call?
There's no universal number. Set your own threshold based on your market and exit, and apply it the same way on every lead.