Wraparound Mortgage

A wraparound mortgage is a seller-financing structure where the seller keeps their existing loan in place and carries a new, larger note for the buyer that wraps around it.

A wraparound mortgage — a "wrap" — is seller financing layered on top of a loan that already exists. The seller keeps their original mortgage in place and carries a new, larger note for the buyer that wraps around it. The buyer makes one monthly payment to the seller; the seller uses part of it to keep paying the underlying lender and keeps the difference. Title transfers to the buyer at closing, and the wrap note is secured against the property.

Here is the math on a hypothetical deal. A seller owes $100,000 at 4% and agrees to sell at $150,000. The buyer puts $15,000 down and signs a wrap note to the seller for $135,000 at 7%. The buyer's payment covers the seller's smaller, cheaper underlying payment, and the seller earns the spread — on the extra $35,000 of principal and on the three points of rate difference. The seller gets income and full price; the buyer gets in without bank qualifying.

Two things decide whether a wrap is clean or a mess, and beginners miss both. First, the underlying loan almost certainly has a due-on-sale clause, and the deed transfer can trigger it — go in understanding that risk. Second, servicing: if the buyer pays the seller and the seller quietly stops paying the original lender, the buyer can face foreclosure while current on every payment. Real wraps close through a title company or attorney with third-party loan servicing, so both loans are documented as paid. This is not legal or tax advice.