Subject-To vs. Loan Assumption: What's the Difference?
By Billy Ross, RFTA Properties, LLC · Last updated · 6 min read
How a loan assumption works
In a loan assumption, the buyer formally takes over your existing mortgage with the lender's approval. The buyer applies with the lender, who checks their credit and income much like a new loan. If approved, the buyer becomes the borrower.
The big benefit for you as the seller is that the lender may also give you a release of liability, which takes you off the loan. Without that written release, you might still be responsible even after an assumption.
Not every loan can be assumed. FHA, VA, and USDA loans are often assumable with lender approval. Most conventional loans aren't, because they include a due-on-sale clause. VA loans have extra rules about the seller's entitlement.
How subject-to works
In a subject-to sale, you sell the house and sign the deed over to the buyer, but the lender doesn't approve a new borrower. The buyer takes the house "subject to" the existing loan and makes the payments. The loan stays in your name.
Because the lender didn't approve the sale, the due-on-sale clause gives the lender the right to ask for the full balance. Read more in The due-on-sale clause.
Side by side
| Loan assumption | Subject-to | Seller financing | |
|---|---|---|---|
| Who's on the loan | The buyer (after approval) | You, the seller | The buyer owes you; any existing loan stays yours |
| Lender approval needed | Yes | No | No new lender (unless you still have a loan) |
| Are you released from the loan? | Only with a written release | No | No, if an underlying loan remains |
| Due-on-sale risk | None once approved | Yes | Yes, if an existing loan remains |
| Typical speed | Weeks to months | Weeks | Weeks |
Why investors use subject-to
Investors use subject-to because it can close fast, without a new loan, and it keeps the existing interest rate. That's especially valuable when your rate is lower than today's rates. It also lets a deal work when there's little equity, because there are no commissions or loan costs eating into it.
The tradeoff is that the risk shifts to you, the seller: your name stays on the loan. That's why a written payment plan, a way to verify payments, and a default plan matter so much.
How to ask your lender about assumption and release
- Call your servicer and ask: "Is my loan assumable? If so, what's the process and the fee?"
- Ask: "If a buyer assumes the loan, will you release me from liability in writing?"
- Ask how long approval usually takes and what the buyer has to submit.
- Get the answers in writing.
If your loan is assumable and a qualified buyer can assume it, that may be a better path than subject-to, since you can be released. The CFPB explains assumable loans here: consumerfinance.gov.
Common questions
Is subject-to the same as assuming a loan?
No. An assumption needs the lender's approval and can release you from the loan. In a subject-to sale, the lender doesn't approve a new borrower, so the loan stays in your name.
Is my loan assumable?
FHA, VA, and USDA loans often are, with lender approval. Most conventional loans aren't. Call your servicer and ask directly.
Which is safer for the seller?
An assumption with a written release of liability is generally safer for the seller, because you're off the loan. Subject-to keeps you on the loan, so you rely on the buyer to pay.