Side-by-side comparison
| Seller financing | Subject-to | |
|---|---|---|
| Who is the lender | You. The buyer signs a note secured by the home | Your existing lender. The loan stays in your name |
| Your current mortgage | Usually paid off at closing, unless the deal "wraps" it | Stays in place |
| How you get paid | Down payment, then monthly payments with interest | Any cash at closing, plus whatever else the agreement provides |
| Effect on your credit | Buyer's payments don't report on your credit | Payments on your loan keep reporting on your credit |
| Main risk | Buyer stops paying and you may need to foreclose | Buyer misses payments, or lender enforces the due-on-sale clause |
| Often a fit when | You own the home outright or have strong equity | You have little equity or want to avoid commissions and repairs |
The due-on-sale clause
Most mortgages include a due-on-sale clause, which lets the lender demand full repayment when the property is transferred. The federal Garn-St Germain Act lets lenders enforce these clauses, with specific exceptions for 1–4 unit homes, such as a transfer to a relative after the borrower's death, a transfer to a spouse or children, or a transfer into a living trust where the borrower stays a beneficiary. A sale to an unrelated buyer is generally not one of those exceptions. Lenders don't always use the clause, but they can.
Rules that can apply to seller financing
Federal lending rules under the Dodd-Frank Act and Regulation Z, along with state laws, can apply when you finance a sale yourself. Limited exemptions exist for people who finance only a small number of properties, but they come with conditions. An attorney can tell you which rules apply and how to set up the note correctly.
Possible tax benefit
Because you receive payments over time, seller financing may qualify as an installment sale, which can let you spread the taxable gain across the years you are paid. IRS Publication 537 explains the rules. Ask a tax professional how it applies to you.
How to protect yourself
- Have your own attorney review every document before you sign.
- Use a third-party loan servicer or escrow to collect and track payments.
- For subject-to, get ongoing access to the loan account so you can see that payments are being made.
- Make sure insurance is in place and you are named appropriately on the policy.
- Spell out in writing what happens if a payment is late or missed, and how you can step in.
- Understand how the loan staying in your name could affect your credit and future borrowing.
How Speti's Flex option works
Flex is Speti's creative-finance option. It can keep your existing mortgage in place, or structure a new loan with you when that's a good fit, and pay part of the price over time so more of your home's value goes to you. We explain the payment structure, the due-on-sale clause, credit effects, and the risks before you decide, and we ask you to review the agreement with your own attorney. Read more in Can you sell a house with a mortgage?
Frequently asked questions
Is a subject-to sale legal?
Generally yes, but it does not remove the lender's due-on-sale rights, and state laws vary. Get legal advice first.
Is seller financing safe for the seller?
It can be, with a solid down payment, a properly recorded note and mortgage or deed of trust, and professional servicing. The main risk is the buyer defaulting.
Can a deal combine both?
Yes. A "wraparound" structure keeps your existing loan in place while you finance the buyer for a larger amount. It carries the risks of both.
General information only, not legal, tax, or financial advice.
Sources
- 12 U.S.C. § 1701j-3 (Garn-St Germain Act) — https://www.govinfo.gov/content/pkg/USCODE-2024-title12/html/USCODE-2024-title12-chap13-sec1701j-3.htm
- IRS Publication 537, Installment Sales — https://www.irs.gov/publications/p537