Subject-To vs. Seller Financing vs. Wraparound Mortgage: A Seller's Side-by-Side Guide
Short answer: all three let you sell a house without the buyer getting a new bank loan, but they work differently. In a subject-to sale the buyer takes over your existing mortgage payments. In seller financing you act as the bank and the buyer pays you, which usually requires the house to be paid off or to have large equity. A wraparound mortgage is a hybrid: the buyer pays you on a new, larger loan, and you keep paying your original mortgage out of those payments.
Which one is right depends mostly on two things: how much equity you have, and whether you want a lump sum now or monthly income over time.
The three options at a glance
| Subject-to | Seller financing | Wraparound | |
|---|---|---|---|
| Your existing mortgage | Stays in place; buyer makes the payments | Usually none (house is paid off), or paid off at closing | Stays in place; you keep paying it |
| Who the buyer pays | Your lender, directly or through a servicer | You | You |
| What you receive | Relief from the payments, plus any agreed cash at closing | Down payment, then monthly principal and interest | Down payment, then the difference between their payment and yours |
| Best when | Little or no equity, behind on payments, need to move fast | House is paid off and you want steady income | Some equity and a low-rate loan you want to earn a spread on |
| Main risk to you | Buyer stops paying a loan in your name | Buyer stops paying you; you may need to foreclose | Buyer stops paying you while you still owe your lender |
| Due-on-sale clause? | Yes, can apply | Not if there is no existing loan | Yes, can apply |
Subject-to: the buyer takes over your payments
You deed the house to the buyer, and the buyer keeps paying your mortgage. You usually walk away with relief from the debt rather than a large check, which is why subject-to is most common when a seller has little equity or is behind. It can close in days because no new loan is needed.
The trade-off is that the loan stays in your name until the buyer refinances or sells. Read Is a Subject-To Sale Safe for the Seller? for the protections to insist on, and the due-on-sale clause, explained.
Seller financing: you become the bank
If you own the house free and clear, or close to it, you can sell to a buyer who pays you a down payment and then monthly installments with interest. You hold a promissory note and a mortgage or deed of trust, just like a bank would.
Why sellers choose it
- Steady monthly income, often at a higher interest rate than a savings account pays.
- A larger pool of buyers, including people who cannot qualify for a bank loan today.
- Spreading the sale over time can change how and when you owe tax on the gain. Ask a tax professional.
What to watch
- If the buyer defaults, you may have to foreclose to get the house back.
- Federal and state lending rules can apply to owner-financed sales, especially if you do more than one. Use an attorney to draft the note.
- You do not get all your money at once.
Wraparound mortgage: a new loan that wraps around the old one
With a wraparound, you keep your existing mortgage and sell to the buyer on a new, larger note. The buyer pays you each month, and you use part of that payment to keep paying your original lender. You keep the difference.
A simple example
Say you owe on a mortgage with a payment of $1,100 a month, and you sell on a wraparound note with a payment of $1,500 a month. The buyer pays you $1,500; you pay your lender $1,100; you keep about $400 a month, plus the down payment. (Illustrative numbers only.)
What to watch
- You are still responsible for the original loan even if the buyer stops paying you.
- The due-on-sale clause can apply, just as with subject-to.
- Use a third-party servicer so both payments are tracked and documented.
Which one fits your situation?
You are behind on payments or have little equity
Subject-to is usually the practical choice. Seller financing needs equity you do not have, and a wraparound only makes sense when there is a spread to earn.
Your house is paid off and you do not need the cash right away
Seller financing can turn the house into monthly income. Just price the risk of a default into your terms.
You have a low-rate loan and meaningful equity
A wraparound can earn you a monthly spread. A subject-to with cash at closing may also work, if the buyer values your low rate.
You want it done and over with
None of the three. A straight cash sale ends your involvement at closing. See how much cash buyers really pay to compare.
Protections that apply to all three
- Close through a licensed title company or real estate attorney.
- Use a third-party loan servicer so every payment is recorded.
- Put default terms in writing: what counts as late, and what happens next.
- Make sure the property is properly insured after closing.
- Keep copies of everything.
Frequently asked questions
What is the difference between subject-to and a wraparound mortgage?
In subject-to, the buyer pays your existing lender and there is no new note between you and the buyer. In a wraparound, the buyer signs a new note with you and pays you, and you keep paying your lender.
Can I do seller financing if I still have a mortgage?
Yes, but that arrangement is effectively a wraparound, and your lender's due-on-sale clause can apply. Talk to an attorney before agreeing to it.
Which option gets me the most money?
Seller financing and wraparounds can pay more in total over time because you earn interest, but you wait for it and carry default risk. Subject-to usually pays less up front but can solve a payment problem immediately.
Do I still need a title company?
Yes. For all three, a title company or attorney makes sure the deed, the note and any liens are handled and recorded correctly.
This article is general information, not legal, tax or financial advice. Lending and disclosure rules vary by state. Please consult a licensed real estate attorney and a tax professional about your situation.
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Last updated: September 2026.