A wrap around mortgage is another type of owner financing that is ideal if 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 house 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.
The Wrap around mortgage is another great method of selling a house 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 seller’s credit,
- Faster home sale,
- Market to a larger pool of buyers.
The main disadvantage to a wrap around mortgage is that if the buyer stops making payments, the seller will get the house back by either a foreclosure or a deed-in-lieu.