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Tuesday, January 15, 2008

Wraparound mortgage

A type of financing where the seller carries the buyer's loan.

Wraparound mortgages are a creative, though rare, way to allow buyers to purchase a home without having to qualify for a loan or to pay closing costs.
The contract is made between the buyer and seller with the lender’s approval.

Here is how it works:
(1) the seller holds onto the existing mortgage
(2) the seller names the property’s selling price
(3) the seller offers the buyer a loan at a higher interest rate than the
existing mortgage
(4) the buyer pays the seller a fixed monthly
(5) the seller uses part of this money towards the
existing loan and then pockets the difference

Unlike an installment sales contract, the buyer gets title (ownership) of the property at closing.
This type of financing is not common since most mortgages have a due-on-sale clause.

Wraparound mortgages are also called all-inclusive trust deeds.
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