Hybrid Financing
Creative FinanceHybrid financing is a real-estate purchase that stacks two layers of financing on one deal instead of one. You take over the seller’s existing mortgage subject-to (it stays in their name, at its low rate, in first position), and the seller carries a note for the equity they have above that loan balance (a new second-position loan). Together the two cover the full price — with no new bank loan and little cash out of your pocket.
Why it exists. Pure subject-to only finances what’s left on the existing loan. If the seller has equity — say they owe $210,000 on a $300,000 house — that $90,000 gap has to come from somewhere. In a hybrid, the seller is that somewhere: they carry the gap as a second note, earning monthly interest and spreading their capital-gains tax over years, while you buy with $5,000–$20,000 instead of a 20% down payment.
The seller sits in second position, behind the first mortgage they remain liable for — a real risk to them. A hybrid only works with an honest buyer, reserves, and a third-party servicer proving payments are made.
For the full mechanics, worked numbers, and risks, see hybrid subject-to + seller finance.