A wraparound mortgage is a form of seller financing that allows a property to be sold while the seller keeps their existing mortgage in place.
Understanding Wraparound Mortgages
The buyer makes payments directly to the seller, who continues paying the original lender. The seller remains responsible for the underlying loan.
How a Wraparound Mortgage Is Structured
Wraparound mortgages include agreed-upon terms such as purchase price, interest rate, down payment, and payment schedule.
Why Buyers Consider Wraparound Mortgages
Buyers may use wraparound mortgages when traditional financing is unavailable due to credit, income, or timing challenges.
Why Sellers Offer Wraparound Mortgages
Sellers may benefit from interest income and a broader buyer pool.
Key Risks for Buyers
- Higher interest rates
- Risk if seller defaults on the original mortgage
- Limited legal protections
Key Risks for Sellers
- Ongoing responsibility for the original loan
- Potential lender restrictions
Legal and Professional Guidance
Attorney review and professional support are essential for wraparound mortgage agreements.
Alternatives to Consider
Buyers should also explore FHA, VA, and USDA loan programs.
Final Thoughts
Wraparound mortgages can be effective in certain situations when used responsibly and with proper guidance.
If you are considering alternative mortgage options, contact our team to discuss what approach may work best for you.