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Understanding Wraparound Loans

The world of loans can be a confusing, overwhelming place, whether you're purchasing your first home or working on a refinance. Below is a rundown of the wraparound loan, a unique financing option that—while tricky—should not be overlooked.

Also called an all-inclusive mortgage, a wraparound loan is where a new home loan is placed in a subordinate or secondary position to the original mortgage and the new loan includes the unpaid balance of the first.

The wraparound allows the buyer to purchase a home without having to qualify for a loan or pay closing costs. The contract is made between the buyer and seller with the seller remaining on the original mortgage and title. The buyer pays the seller a fixed monthly amount and the seller uses part of this money towards the existing loan.

Sounds great right? Keep in mind that the seller benefits by offering the buyer a loan at a higher interest rate than the existing mortgage, and the lender profits from the difference in interest in the two loans.

Wraparounds are not for novices and cannot be used when there is a legally enforceable 'due on sale' clause in the first mortgage.

Consult an attorney if you are considering this type of financing. 

As a Member of the Top 5 in Real Estate Network®, I, along with my team, have a wealth of real estate and homeownership information that may be of help to you. Feel free to contact our team any time to learn more about this important information, and be sure to forward this article on to any friends or family that may be interested as well.

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