Subject-to and seller financing both let you buy without qualifying for a new bank loan — they differ in one decisive way: who holds the financing. In a subject-to deal, you take title and keep paying the seller's existing mortgage, which stays in their name. In seller financing, the seller becomes the bank and writes a new note you pay directly. The short rule: subject-to fits a seller with an attractive existing loan and little equity who needs to walk away. Seller financing fits a seller who owns free and clear and would rather collect monthly income than a lump sum.
What Subject-To Actually Means
In a subject-to purchase, the deed transfers to you but the loan does not. The seller's mortgage stays in their name and you simply take over the payments. You acquire the property "subject to" the existing financing remaining in place. The appeal is obvious when the existing loan carries a rate you could never get today — you inherit it. The catch is the due-on-sale clause: nearly every conventional mortgage gives the lender the right to call the full balance due if the property transfers. Lenders rarely exercise it while payments stay current, but you must be able to refinance or pay off the loan if they do. For the full underwriting walk-through, see our guide on how to analyze a subject-to deal.
What Seller Financing Actually Means
In seller financing, the seller creates a brand-new promissory note and you pay them instead of a bank. Every term is negotiable — interest rate, down payment, amortization period, and whether there is a balloon. It works cleanest when the seller owns the property free and clear, because there is no underlying lender to worry about. A seller who has owned for decades, has no mortgage, and wants steady income rather than a taxable lump sum is the ideal counterparty. Our seller financing structure guide covers the note terms in depth.
The Core Difference: Existing Loan vs New Note
Everything else follows from this one fact. Subject-to is built on a loan that already exists; its entire value is the rate and terms that loan already carries. Seller financing creates a loan that did not exist before; its value is the flexibility to set terms that fit the deal. If a seller has a 3% mortgage and almost no equity, subject-to lets you keep that 3%. If a seller owns free and clear, there is no existing loan to take over, so seller financing is the only creative path available.
When Each Structure Wins
- Subject-to wins when the seller has a below-market existing rate, little or negative equity, and a reason to move quickly — relocation, payment fatigue, or an inherited property they do not want.
- Seller financing wins when the seller owns free and clear or has large equity, does not need all the cash at once, and is motivated by monthly income and tax deferral.
- Either can work when the seller has significant equity and an attractive loan — you can sometimes combine them with a wrap, though that adds complexity and due-on-sale exposure.
Worked Example: The Same House, Two Structures
Take a $300,000 property and walk both paths.
Subject-to: The seller owes $235,000 on a 30-year mortgage at 3.25% with payments of roughly $1,020 a month in principal and interest. They are relocating and have little equity, so you pay them $15,000 for their equity and moving costs and take over the loan subject-to. Add taxes and insurance of about $380 and your all-in payment is near $1,400. At $2,100 in rent, you have roughly $700 a month before management and reserves — and you are holding a 3.25% loan no bank will write today.
Seller financing: A different seller owns the identical house free and clear and wants income. You agree on a $300,000 price with $30,000 down, and the seller carries $270,000 at 6% over 30 years — about $1,619 a month in principal and interest. With the same $380 in taxes and insurance, your payment is near $2,000, leaving roughly $100 a month on the same $2,100 rent.
Same house, same rent, very different outcomes — and the deciding factor is not the strategy name. It is whether an attractive existing loan is sitting on the property. Subject-to monetizes a cheap loan; seller financing creates a clean note where no good loan exists.
The Risks You Have to Model
Subject-to carries due-on-sale risk and requires that you keep the seller's loan current and protect your position with proper insurance and title work. Seller financing carries the risk of a balloon you cannot refinance and a seller whose circumstances change. In both cases, the discipline is the same: model the exit before you sign. Know how you would refinance or sell if the structure had to unwind, and make sure the numbers still work.
Bottom Line
Do not pick the strategy first and hunt for a deal that fits it. Read the seller's situation — their loan, their equity, and what they actually need — and let that tell you which structure the deal supports. Appraize models subject-to and seller financing side by side on the same property, with the existing loan terms, your new note, and the cash flow for each, so you can compare them in seconds instead of in a spreadsheet. Your first 3 analyses are free.
