Wraparound Mortgages Explained: Everything You Need To Know

When a buyer can’t qualify for a traditional mortgage loan, it can make for a rough sale for both the buyer and seller. While the situation may seem impossible, there may be another financing option for both parties to close the deal.

A wraparound mortgage can provide the buyer with the financing they need to purchase a home, and it may even make the seller a profit. However, wraparound mortgages come with risks, so it’s important to know what you’re getting into before using one to buy or sell a home.

What Is A Wraparound Mortgage?

A wraparound mortgage is a home loan that allows the seller to maintain their existing mortgage while the buyer’s mortgage “wraps” around the existing amount owed.

Instead of paying a bank or lender, the buyer makes monthly payments directly to the seller. In turn, the seller uses a portion of the buyer’s monthly payments to continue making their mortgage payments. Since most wraparound mortgages often have higher interest rates than conventional mortgages, sellers can typically profit from the rate they charge a buyer.