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This means if the house is sold, the entire mortgage balance is due. Most mortgages have a "due on sale" clause.
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The chief danger of the wrap around mortgage is to the seller. * The home seller typically charges a higher interest rate than he has on the existing mortgage and makes money on the difference.įor the home buyer, a wrap around mortgage offers a way to get into a home when traditional financing avenues are closed.
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A wrap around mortgage can help get a house sold because it is, in effect, owner financing. * In a slow housing market, lenders often are more stringent in enforcing credit standards making it harder for marginal borrowers to get home financing. The seller has two benefits in a wrap around mortgage: The home buyer then pays a monthly mortgage payment to the home seller and the home seller continues paying on the original mortgage. The following information will explain what a wrap around mortgage is and the chief risks.Ī wrap around mortgage is a home loan from a home owner to a prospective buyer that "wraps around" the existing mortgage on the home. But there are dangers for both the lender and the borrower. It can help close a sale when a borrower doesn't qualify for a traditional loan. A wrap around mortgage is a second loan a home owner makes to a prospective buyer to help him purchase the home.