A wraparound mortgage is a financial option for real estate investors and traditional home buyers. In many cases, it can be a more desirable alternative to other non-conventional funding sources and can benefit both the buyer and seller. However, wraparound mortgages also come with their own set of risks, so you should be well-informed before getting into one.
In this article, we’ll explain what a wraparound mortgage is, how they work, weigh the pros and cons, and discuss alternative loan options worth considering.
What is a Wraparound Mortgage?
With a wraparound mortgage, the buyer becomes responsible for paying the seller for the property’s total purchase price plus interest, based on the negotiated terms.
A wraparound mortgage is basically a secondary mortgage or junior loan that an investor or home buyer takes out directly with the seller instead of a traditional bank or lending institution. Instead of trying to qualify for a loan, credit history checks, and meeting a conventional institution’s requirements, the buyer works out the loan and repayment conditions with the seller.
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