Vendor Finance - Wrap

A wrap is when you the Wrapper on – sell to the wrapper the new homeowner. It is called a wrap because their mortgage wraps around your mortgage that is why it is called a wrap.

A wrap-around mortgage is a loan transaction in which the lender assumes responsibility for an existing mortgage. For example the wrapper which is you who has a $70,000 mortgage on his home, sells his home the wrappee (new buyer) for $100,000. Wrappee pays $5,000 down and borrows $95,000 on a new mortgage. This mortgage "wraps around" the existing $70,000 mortgage because the new lender will make the payments on the old mortgage.

A wrap-around mortgage is a type of financing, similar to owner financing. In a wrap-around, the seller has a pre-existing mortgage on the home, but you aren't assuming his loan. Instead, you're buying the home directly through the seller who "wraps" your mortgage around his own home loan. This type of financing can be highly beneficial to home buyers who can't qualify for a conventional loan, since the seller acts as the lending agent and doesn't have to follow stringent income and/or credit requirements. While financing real estate through a wrap-around is perfectly legal.

A Wrap is a situation where a property is sold to the buyer, however the seller keeps the mortgage and then “wraps” a second mortage around the first, which the buyer slowly pays off. The buyer won’t gain title until their mortgage is paid off.

This system provides cashflow for the seller and gives the buyer a chance to get into a house that otherwise they might not be able to, if they don’t qualify for standard bank finance. In essence, the seller is acting as a bank, providing a mortgage to the buyer.

A wrap-around mortgage is an example of creative financing. With a wrap-around mortgage, the original mortgage and the title remain in the seller’s name, and the seller continues to make payments on the mortgage. The seller and the buyer agree on the deposit from the buyer; the buyer pays for the difference between the sale price and the down payment with regularly scheduled payments that include interest and cover the payments on the original mortgage.

This is all explained in The Aussie Wrapper’s Complete guide on pages 10,11,12.

A wrap-around mortgages are particularly advantageous to buyers with so-so credit, because in a tight real estate market, those people would likely not be able to qualify for a traditional mortgage loan. This is way the wrapper (you the owner of the property) can help these people refinance down the track.

A wrap-around loan allows a person to buy a home without having to get a mortgage from a lender such as a bank or credit union. Instead, the seller of the home acts as the lender. Wrap-around mortgages can help buyers with bad credit and sellers who find it hard to sell their homes.

Benefits

For buyers who are unable to get approved for a regular mortgage--because of bad credit, for example--a wrap-around can be a path to homeownership.

You may or may not heard of this term before but a wraparound mortgage or “wrap” is a form of secondary  financing for the purchase of real property. The seller/lender extends to the buyer a junior mortgage which  wraps around and existing mortgage, typically the bank or the seller of the  real property assumes the payment of the existing mortgage and provides the borrower with a new larger loan, usually at a higher interest rate.

This type of loan is frequently used as a method of refinancing a property or financing the purchase of property when an existing mortgage cannot be paid off. The borrower makes the payment to the new lender on the larger loan and the lender makes payments on the original loan.

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To Your Success
Paul Zalitis
The Aussie Wrapper