Wraparound Mortgage: Simple Answers to Home Loan Terms in 2023

Wraparound Mortgage

Unraveling the Mystery

What is a wraparound mortgage? In the world of real estate, there’s an array of mortgage options available to buyers and sellers. One lesser-known option is the wraparound mortgage. To help you better understand this type of financing, we’ve compiled a comprehensive guide that dives into the nuances of wraparound mortgages and explores their potential benefits and drawbacks.

Understanding Wraparound Mortgages

A wraparound mortgage, also known as a wrap loan or wrap financing, is a unique form of creative financing often used in real estate transactions. In essence, it’s a secondary mortgage that encompasses (or “wraps around”) an existing mortgage. The borrower makes payments to the lender, who then pays the original mortgage holder.

Key Components

A wraparound mortgage consists of the following primary components:

  1. Existing Mortgage: The original mortgage held by the property seller.
  2. New Mortgage: A secondary mortgage taken out by the buyer, which wraps around the existing mortgage.
  3. Payments: The buyer makes payments to the seller, who then pays the original mortgage holder.

Wraparound mortgages are commonly used in situations where the buyer has difficulty obtaining traditional financing, such as with a non-warrantable condo or when the buyer has a less-than-stellar credit score.

What Is A Wraparound Mortgage

Statistics: Wraparound Mortgage Market Trends and Government Data

Wraparound mortgages, while not as common as traditional mortgage loans, can be a viable financing option for certain situations. This section provides valuable insights and data from authoritative government sources to help you better understand wraparound mortgage trends and regulations.

Wraparound Mortgage Regulatory Information

  1. Consumer Financial Protection Bureau (CFPB): The CFPB is a government agency responsible for enforcing federal consumer financial laws, ensuring consumers are treated fairly, and increasing transparency in the financial industry. Although wraparound mortgages are not directly regulated by the CFPB, the agency provides general guidance on mortgage lending practices, which can be helpful in understanding your rights and protections when considering a wraparound mortgage.
  2. Federal Trade Commission (FTC): The FTC enforces consumer protection laws in the mortgage industry and can be a valuable resource for wraparound mortgage-related information. They can provide guidance on how to avoid mortgage-related scams and protect yourself as a consumer.

Wraparound Mortgage Data and Trends

  1. U.S. Census Bureau: The U.S. Census Bureau collects and publishes comprehensive data on housing and homeownership trends in the United States. This information can help you understand the prevalence of wraparound mortgages in your area and how they compare to other financing options.
  2. Federal Housing Finance Agency (FHFA): The FHFA is responsible for regulating and overseeing the secondary mortgage market, including Fannie Mae, Freddie Mac, and the Federal Home Loan Banks. Although wraparound mortgages are not directly regulated by the FHFA, their data on housing market trends and mortgage rates can provide valuable context for understanding the potential benefits and drawbacks of wraparound mortgages.
  3. U.S. Department of Housing and Urban Development (HUD): HUD is a government agency that supports homeownership, affordable housing, and community development. Their resources and information on housing counseling, foreclosure avoidance, and various loan programs can provide valuable insights into the wraparound mortgage market and its place within the broader housing finance landscape.

By understanding the regulations and trends surrounding wraparound mortgages, you can make more informed decisions when considering this financing option. For more information on wraparound mortgages and other mortgage-related topics, visit our Mortgage Terms page.

Wraparound Mortgage Rates

Examples and Scenarios

To better illustrate how a wraparound mortgage works, let’s consider an example. Kirk and Sandy obtained a wraparound mortgage when they purchased a property for $300,000. The existing mortgage on the property had a balance of $200,000 at a 4% interest rate. Kirk and Sandy took out a new mortgage for $275,000 at a 5% interest rate, which wrapped around the existing mortgage. They made payments to the seller, who continued to pay the original mortgage holder.

In another scenario, a property owner in Oregon may want to sell their property but is unsure if wraparound mortgages are legal in their state. It’s essential to research state-specific regulations and consult with a real estate attorney or professional to determine the legality and potential implications of using a wraparound mortgage.

Welcome to the world of wraparound mortgages! In this comprehensive guide, we’ll explore the ins and outs of this unique mortgage instrument. You’ll learn about the defining features of a wraparound mortgage, the benefits and drawbacks, and how it differs from other mortgage products. Let’s dive right in!

The Benefits of Wraparound Mortgages

There are several advantages to wraparound mortgages for both the buyer and the seller:

  1. Easier financing for buyers: Buyers with less-than-perfect credit or those purchasing non-warrantable properties can still secure financing.
  2. Potential for lower interest rates: The wraparound mortgage may have a lower interest rate than a traditional loan, reducing the buyer’s mortgage payment.
  3. Faster closing: Wraparound mortgages often have faster closing times since there’s no need for a bank or mortgage company to approve the loan.
  4. Additional income for sellers: Sellers can benefit from interest income generated by the wraparound mortgage.

The Drawbacks of Wraparound Mortgages

Despite the benefits, there are also drawbacks to wraparound mortgages:

  1. Seller’s financial risk: If the buyer defaults, the seller may need to foreclose on the property and potentially suffer financial losses.
  2. Due-on-sale clause: Some mortgages contain a clause that prevents a wraparound mortgage by requiring the loan to be paid off upon the sale of the property.
  3. Legal restrictions: Some states, like Oregon and Missouri, may impose restrictions or prohibitions on wraparound mortgages.

Wraparound Mortgage vs. Other Mortgage Types

A wraparound mortgage differs from a purchase money mortgage in that the latter is a new loan extended by the seller, while the former wraps around the existing loan. Additionally, wraparound mortgages are distinct from home equity loans and bridge loans, which are separate financing instruments used for specific purposes.

Wraparound Mortgage Options

How to Calculate a Wraparound Mortgage

To get an idea of what a wraparound mortgage may look like, you can use a wraparound mortgage calculator to estimate the monthly payments, total interest paid, and the overall cost of the loan. Keep in mind that these calculators are only estimates and may not reflect the exact terms of your specific wraparound mortgage.

Pros and Cons of Wraparound Mortgages

As with any financial instrument, wraparound mortgages come with their own set of benefits and drawbacks. Weighing these factors can help you determine whether this type of financing is the right fit for your needs.


  1. Flexibility: Wraparound mortgages offer flexibility for both buyers and sellers, as they can be tailored to meet specific needs.
  2. Accessibility: They can be an attractive option for buyers with less-than-perfect credit, as they may not need to qualify for a traditional mortgage.
  3. Potential Income: Sellers can potentially earn income from the interest rate spread between the existing mortgage and the new wraparound mortgage.


  1. Risk: Wraparound mortgages carry inherent risks, including default by the buyer, which could leave the seller responsible for the original mortgage.
  2. Legality: The legality of wraparound mortgages varies by state, and they may not be allowed in certain jurisdictions.
  3. Due-on-Sale Clauses: Some existing mortgages contain due-on-sale clauses, which require the loan to be paid in full upon the sale of the property. This can pose challenges for wraparound mortgage transactions.

Wraparound Mortgage Calculators and Resources

To gain a better understanding of the financial implications of wraparound mortgages, it can be helpful to use a wraparound mortgage calculator. These calculators can estimate the monthly payments and interest costs associated with wraparound mortgages, helping buyers and sellers make informed decisions.

Additionally, researching state-specific regulations and consulting with real estate professionals can provide valuable insights into the intricacies of wraparound mortgages. For example, a potential buyer in Missouri may wonder, “Can I do a wraparound mortgage in Missouri?” By seeking guidance from local experts and resources, they can determine whether this type of financing is feasible and permitted in their state.

Working with Real Estate Professionals

While wraparound mortgages can offer a creative financing solution for buyers and sellers, navigating the complexities of this type of mortgage can be challenging. That’s why it’s crucial to work with experienced real estate professionals, such as real estate agents, attorneys, and mortgage brokers, who can provide valuable guidance and support throughout the process.

Finding the Right Team

To find the right team of real estate professionals, consider the following:

  1. Experience: Look for individuals who have experience with wraparound mortgages and creative financing solutions.
  2. Reputation: Seek recommendations from friends, family, or online reviews to identify professionals with a strong track record and positive feedback.
  3. Local Knowledge: Work with professionals who have a deep understanding of the local market and state-specific regulations.

Mortgage Rater Wrap Up

Wraparound mortgages offer an alternative financing solution for real estate transactions, providing flexibility and potential advantages for both buyers and sellers. However, these mortgages come with inherent risks and potential legal complications. To determine whether a wraparound mortgage is the right choice for your needs, research your state’s regulations, consult with experienced real estate professionals, and consider the potential benefits and drawbacks of this financing option. By taking the time to understand the intricacies of wraparound mortgages, you can make more informed decisions and navigate the world of real estate with confidence.

Expand Your Mortgage Knowledge

To further your understanding of mortgage terms and concepts, be sure to visit our Mortgage Terms page. Here, you’ll find comprehensive explanations of various mortgage topics, such as adjustable-rate mortgages, amortization schedules, home appraisals, and much more. By familiarizing yourself with these terms, you’ll be better equipped to navigate the mortgage process and make informed decisions about your financial future.

Ready to Explore Your Mortgage Options?

When you’re ready to explore your mortgage options, Mortgage Rater is here to help. Whether you’re interested in pursuing a wraparound mortgage or exploring other types of financing, our team of mortgage professionals is dedicated to helping you find the best solution for your unique situation. To begin your journey toward homeownership or refinancing, click here to apply for a loan with Mortgage Rater.

Donavon Warren

Donavon Warren

Donavon Warren is a seasoned finance professional with over 20 years of experience. Before embarking into the mortgage industry Donavon attended UCLA. He is the owner of Mortgage Rater, a leading mortgage finance company that offers a range of informational services to clients across the United States. As a finance and mortgage author, Donavon brings his wealth of knowledge and experience to the platform, writing about various topics related to personal finance, investments, home loans, FHA loans, VA loans, 30 Year Fixed rates, no-interest loans, mortgages and more. With his insights and expertise, he aims to educate and empower readers to make informed financial decisions that can help them achieve their financial and mortgage goals. NMLS#2470202
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