What is Wraparound Mortgage (Wrap)?
A wraparound mortgage ("wrap") is seller financing structured on top of (wrapping) the seller's existing mortgage. The buyer pays the seller; the seller continues paying their own mortgage. The wrap rate is higher than the underlying rate, and the spread is the seller's profit.
A wrap combines subject-to (existing mortgage stays) with seller financing (new loan from seller to buyer). The buyer signs a note to the seller for the full purchase price minus down payment, at a market rate. The seller continues paying their underlying lower-rate mortgage. The seller pockets the rate spread plus principal pay-down each month.
Same due-on-sale risk as subject-to — the underlying lender could call the loan if they discover the transfer. Same mitigations apply: land trusts, attorney-drafted documents, payoff readiness.
Wraps are most attractive when the seller has a sub-market underlying rate they want to preserve, the buyer can't qualify for traditional financing, and both parties accept the lender risk. They're common in down-payment-light deals where the buyer is paying a higher effective rate in exchange for not having to qualify.
Seller owes $150,000 at 3.5%, monthly payment $675. Sells for $250,000 to buyer with $20,000 down and a wrap note for $230,000 at 7% over 30 years (monthly $1,530). Buyer pays seller $1,530; seller pays underlying lender $675; seller nets $855/mo plus the principal pay-down on both loans.
Concepts that connect.
A "subject-to" deal is when an investor buys a property and takes title, while leaving the seller's existing mortgage in place — the investor makes payments on the seller's loan. Used to acquire properties with locked-in low rates or when the seller is behind on payments and needs to walk away.
Seller financing (also called owner financing) is when the property seller acts as the lender — the buyer makes monthly payments directly to the seller instead of a bank. Used when the seller owns free-and-clear, wants ongoing income, or when the buyer can't qualify for traditional financing.
Creative finance is the family of non-conventional real-estate transaction structures — subject-to, seller financing, wraparound mortgages, lease options, land contracts. Used when conventional financing doesn't fit the deal or when the seller has motivation to preserve a below-market loan.
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