What Is a Wraparound Mortgage in Real Estate?

A wraparound mortgage is a type of seller financing where the seller keeps their existing mortgage in place and “wraps” a new loan around it. The buyer makes payments directly to the seller, and the seller continues paying the original lender.

✅ How a Wraparound Mortgage Works

  • The seller keeps their original mortgage in place (usually with a low interest rate).
  • The buyer signs a new promissory note with the seller at a higher interest rate.
  • The buyer pays the seller each month.
  • The seller uses a portion of that payment to continue paying their original loan.
  • The seller keeps the difference as profit.

Wraparound mortgages are common when buyers cannot qualify for traditional financing or when sellers want additional profit from interest.

💡 Benefits of a Wraparound Mortgage

  • Lower buyer qualification requirement.
  • Interest spread profits for the seller.
  • Flexible terms: down payment, rate, and structure can be negotiated.
  • Useful in high-rate markets when sellers have low-rate existing mortgages.

⚠️ Risks of Wraparound Mortgages

  • Due-on-sale clause: The bank could call the original loan due.
  • Buyer risk: The seller may fail to make payments to the lender.
  • Seller risk: Buyer defaults, and foreclosure may be required.
  • Not legal in every state: Some states restrict wraparound lending.

Both parties should use an attorney or title company when structuring a wraparound mortgage.

🏡 Wraparound Mortgages in FSBO Sales

Wraparound mortgages are most common in FSBO and seller-financed transactions. They allow sellers to attract more buyers and command a higher price due to flexible terms.

Learn more: Seller Financing Guide →