The Core Difference, in One Line
**Owner financing**: the seller becomes the bank. The buyer signs a new promissory note payable to the seller.
**Subject-to**: the existing bank stays the bank. The buyer keeps making payments on the seller's existing mortgage. (See our full explainer for the mechanics.)
Owner Financing: Seller IS the Bank
In a true owner-financed deal (sometimes called a wraparound or seller carryback), the seller transfers title to the buyer and the buyer signs a new note directly to the seller. Term, interest rate, monthly payment, and balloon date are negotiated between the two parties — not dictated by a lender.
Owner financing works cleanly when the seller has paid off the original mortgage (no underlying loan). The seller receives the buyer's monthly payment and either keeps it or lives off it. If the buyer defaults, the seller forecloses and reclaims the property.
If the seller still has a mortgage, owner financing usually becomes a **wrap mortgage** — the seller's loan stays in place, the buyer's payment wraps around it, and the seller collects the difference between what the buyer pays in and what the seller pays out to their lender each month.
Subject-To: Buyer Just Takes Over the Existing Loan
No new note. No wrap. The buyer takes title and starts making payments on the seller's existing mortgage — same balance, same rate, same monthly payment, same lender. The seller stays on the loan; the buyer is not added.
There's usually a small (or zero) down payment to the seller, plus a performance mortgage given by the buyer to the seller as security. If the buyer ever stops paying, the seller can foreclose on that performance mortgage and recover the property.
Side-by-Side: Who's on the Hook
Who's on the original mortgage? Owner financing (free-and-clear): no one — paid off. Wrap: seller stays. Subject-to: seller stays.
Who holds the new note (if any)? Owner financing: seller. Wrap: seller. Subject-to: no new note from buyer to seller — only the original mortgage exists.
Who controls the interest rate? Owner financing: negotiated. Subject-to: locked at whatever the seller's mortgage already is — often a huge advantage in a high-rate environment.
Who's the bank? Owner financing: seller. Subject-to: original lender.
When Each Fits Best
**Owner financing fits when**: the seller owns the property free and clear (or close to it), has time to act as the bank for years, wants monthly income, and trusts the buyer.
**Subject-to fits when**: the seller still has a meaningful mortgage balance, wants out of the property quickly, doesn't want to be the lender, and the existing loan has a favorable interest rate or terms worth preserving.
If you're facing foreclosure, subject-to is usually the faster of the two — there's no need to negotiate amortization, balloon, or rate.