Wraparound Mortgage
A wraparound mortgage allows sellers to finance a buyer’s loan while keeping the existing mortgage. Learn risks and advantages for both parties.
Definition
A wraparound mortgage is a form of seller financing in which the seller keeps their existing mortgage on the property and issues a new loan to the buyer that "wraps around" the original. The buyer makes payments to the seller based on the wraparound loan’s terms, and the seller uses those funds to pay the underlying mortgage. The difference between the wraparound loan’s rate and the original mortgage’s rate can generate profit for the seller. Wraparound mortgages can help buyers who can’t qualify for conventional financing and sellers seeking to attract more buyers. However, they carry risks, including due‑on‑sale clauses in the underlying mortgage and the possibility that the seller might not make payments, jeopardizing both parties.
Why It Matters
Wraparound Mortgage often affects pricing, lending, title, zoning, or escrow procedures. Sellers benefit from understanding it to set clear expectations, while buyers gain confidence in budgeting and due diligence.
Examples
Example 1: A seller references wraparound mortgage in the listing notes or disclosures.
Example 2: A buyer checks wraparound mortgage alongside comps, loan terms, or HOA documents before making an offer.
Example 3: Escrow or title ensures wraparound mortgage compliance before recording the transaction.
Tips
Ask how wraparound mortgage might influence financing, contracts, or title.
Document related issues clearly to prevent disputes.
Use a flat fee multiple listingto cut costs and still gain MLS exposure.
Additional Context
Wraparound Mortgage is frequently connected to other real estate steps such as financing, zoning approvals, appraisals, and contract contingencies. Surfacing these issues early and documenting them in writing helps keep both sides aligned.
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