Wraparound Mortgage

A wraparound mortgage, also known as an all-inclusive trust deed, is a creative way to allow you to purchase property without having to qualify for a loan or pay closing costs. This could be used when attempting to purchase commercial property without running the risk of being turned down for a large business loan. The process of obtaining the property is also expedited because the property does not have to go through a typical lender. It allows you to obtain property to conduct business in while you work to build your business credit. Growing your business credit will allow you to qualify for larger business loans.

If a seller still owes money on a particular piece of property that you want to buy, they would charge you the monthly payment left on the mortgage plus an extra monthly payment to cover the selling price. The seller chooses the property’s resale price. A wraparound mortgage benefits the seller because they earn money on the interest payment each month because the seller would charge a higher interest rate to you, the buyer.

Features of Wraparound Mortgage

1. Ownership remains in the name of the seller

In a Wraparound Mortgage, the buyer does not get ownership of the property. Instead, it remains in the name of the seller. This is different than an installment sales contract. It is a creative way to allow a buyer to purchase property without having to qualify for a loan or to pay closing costs. The contract is made between the buyer and seller with the seller remaining on the original mortgage and title.

2. Seller acts as the lender

The seller would act as the lender and benefits because you pay them a set monthly fee which includes their current mortgage payment, the predetermined monthly rate for the property, and it includes the interest charged by the lender. The lender, or seller, will typically offer the property at a little higher interest than what they are currently getting so they benefit from the transaction.

Why Wraparound Mortgage?

1. Get early access to the property

Wraparound Mortgage is an excellent way for a start-up business to get access to the property they would typically have to wait months to obtain.

2. Not affected by credit history

A wraparound mortgage can be an excellent way to obtain a commercial property with little business credit history. A Wraparound mortgage financing is a perfect solution for you if your business has a little business credit history. Most lenders won’t give large commercial loans, or small business loans for that matter, to businesses with little or no credit history. You can avoid that problem with a Wraparound Mortgage because you purchase the property directly from the seller instead of going through a regular lender like a bank.

Things to know before considering a wraparound mortgage

1. Does your state allow it?

When considering a wraparound mortgage, it is important to know that some states do not allow them. You will need to check that out before proceeding with one. It is also important to determine what the laws are in your state considering these types of mortgages. Some states do not allow them.

2. Are you getting legal advice?

Record keeping can be extremely complex, and you will need to get legal advice to make sure you are documenting everything properly.  Make certain that the seller also notifies the lender before proceeding, because the lender can make the loan due in full if they find out.

Keep in mind when proceeding with a wraparound mortgage that the agreement is set between the buyer and seller, and the seller remains on the original mortgage and title.

It is extremely important to get an agreement in place before proceeding with a Wraparound Mortgage. Having a lawyer review the agreement will be beneficial to both parties involved and protects everyone.


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