A wrap around mortgage is another type of owner financing that is ideal when you have an underlying mortgage along with some equity. The seller simply creates a brand new mortgage and it just “wraps around” the existing mortgage.
Current Home Value: $250,000
Current Mortgage Balance $200,000
The seller could sell the home for $250,000, receive a down payment from the buyer for $20,000, and create a new mortgage in the amount of $230,000. The $230,000 mortgage would “wrap-around” the existing $200,000 mortgage. The buyer would make payments directly to the seller for their newly-created $230,000 mortgage. The seller would continue to make payments on the existing $200,000 mortgage.
This is another great method of selling a home in a market where a seller does not want to lose their hard-earned equity, and where it has proven to be difficult to find buyers who can get conventional financing.
Some of the advantages of a wrap around mortgage are…
Higher asking price
Little to no closing costs
Typically no realtor commissions
Can improve the sellers credit
Faster home sale
Market to a larger pool of buyers
The main disadvantage to a wrap around mortgage is: if the buyer stops making payments, the seller will get the house back by either a foreclosure or a deed-in-lieu.
Markette Properties buys homes using this method, or will assist you in a transaction with a buyer.