What Is a Wraparound Mortgage?

The seller sells and carries back a new note for the price less the down payment. That note wraps the old one: its balance includes the underlying loan plus the seller’s equity. The buyer pays the wrap note to the seller or a servicer, the underlying payment goes to the original lender, and the seller keeps the rest. Because the wrap usually carries a higher rate than the underlying loan, the spread is the seller’s return. The underlying loan is never paid off and stays in the seller’s name. Where deeds of trust are used, the instrument is often called an all-inclusive trust deed.

Wholesaling teams meet wraps as an exit for properties acquired subject-to or with seller financing. Instead of assigning or flipping, the investor sells to a buyer on a wrap and takes a down payment plus a monthly spread. Callers can spot candidates on the seller side too: owners with low-rate loans and plenty of equity who would rather be paid over time. Servicing matters, so a third-party servicer should collect the buyer’s payment and pay the underlying lender so the original loan never falls behind. Callers only capture loan balance, rate, payment, and equity; acquisitions or counsel structures the deal.

The weak link is the underlying loan’s due-on-sale clause. A wrap is a sale, so the lender can in theory demand the balance. If the seller stops forwarding payments, the buyer can lose a home they have been paying for. Rules for seller-financed sales of homes the buyer will live in, including licensing and ability-to-repay requirements, may apply. Insurance, taxes, and recorded documents need structure. The word wrap covers a range of deals online, so define the terms in writing.