Wraparound Mortgage: Buyer and Seller Advantages

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A wraparound mortgage is a variation of seller financing that can be used to finance the purchase of a property. This type of mortgage can be beneficial to both the buyer and the seller in a transaction. Here are the basics of the wraparound mortgage and how it can be beneficial to both parties involved.

Wraparound Mortgage

With this type of arrangement, the seller of a property is going to offer a mortgage to the buyer of a property. The buyer is going to make monthly payments to the seller and the seller is going to use part of that money to repay the existing mortgage on the property.

Buyer Advantages

The buyer of this type of mortgage is going to have a few advantages. For one thing, they are going to be able to purchase a property even if they do not have the best credit. They are not going to have to go through a traditional lender which means they can avoid the regular credit approval process. They are going to be borrowing money from the seller of the property, so they do not necessarily have to have great credit.

Another benefit for the buyer is that this process is going to provide them with a home faster than other options that are available. When you work with a typical lender, you are going to have to go through an extensive approval process. The lender is going to have to verify your income, your credit report, and several other factors. When you get a wraparound mortgage, the seller is not going to have to go through such a lengthy process. They will make the individual lending decision, which means you will be in your house faster.

Seller Advantages

Even though this type of mortgage can be beneficial to the buyer, the seller of the property can really benefit as well. With this type of loan, you are going to be able to attract another group of potential buyers. If you do not offer any type of seller financing, you are only going to open your property up to those that have good credit scores. This might make it difficult to sell your property during a buyers market. However, when you make your property available to those that do not have good credit scores, it is going to be much easier to find a buyer.

Offering this type of mortgage also provides the seller a financial benefit. If you offer seller financing, you are going to be able to negotiate a higher sales price on the property. You will also be able to earn a spread between the two interest rates on the mortgages. For example, if the existing mortgage on the property is at five percent and you are giving them a mortgage at eight percent, you will be able to pocket the difference of the rates.