What's the difference between a subto and a wrap?

With wraparound financing, the buyer makes payments to the seller rather than directly to the lender. With "subject to" financing, the buyer makes mortgage payments directly, but does not assume the mortgage. Additionally, wraparound financing typically requires the seller to create an all-inclusive second mortgage (complex), while "subject to" financing does not involve any changes to the existing mortgage.

Wraparound financing

Also known as a "wrap," this is a type of financing in which the seller provides financing to the buyer by placing a new second mortgage on the property. The seller's new mortgage is "wrapped around" the existing mortgage on the property, with the buyer making payments to the seller rather than the lender. The seller is responsible for paying the existing mortgage and any other debts on the property.

"Subject to" financing (subto)

Also known as a "subject to" deal or "subto" purchase, this is a type of real estate transaction in which a buyer takes over the responsibility for monthly mortgage payments, but does not assume the mortgage. The buyer is contractually responsible for fulfilling the terms of the loan, but the lender is not notified of the transfer of ownership. Payments look good on the seller's credit, and nonpayments look bad.