Understanding Wraparound Mortgages: A Unique Home Financing Approach
When navigating the complexities of real estate financing, unique structures such as the wraparound mortgage offer alternative pathways for both buyers and sellers. But what exactly is a wraparound mortgage, and how does it function? Let’s dive into what makes this method appealing, along with the potential benefits and risks it presents.
What Is a Wraparound Mortgage?
A wraparound mortgage is an alternative home financing option where the seller maintains their existing mortgage while creating a new loan that “wraps around” the existing amount owed. Unlike conventional home sales where buyers secure mortgages through banks or lenders, buyers in a wraparound agreement make their monthly payments directly to the seller. The seller, in turn, uses part of those payments to continue paying off their original mortgage. This type of mortgage often comes with higher interest rates than traditional loans, giving sellers an opportunity to profit.
How Does a Wraparound Mortgage Work?
In a typical real estate transaction, a mortgage lender provides the loan for the home purchase, and the seller uses the proceeds to settle their mortgage. With a wraparound mortgage, howeve
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