What is a wraparound mortgage?

A wraparound mortgage is a financing tool used in real estate transactions in California. It is a type of loan in which a borrower takes out a loan secured by their existing property, and then uses that loan to finance the purchase of a new property. The borrower is then expected to pay off both loans with the help of the new loan. The original mortgage remains in place, and the new loan is placed in a "wrap" around the original mortgage. The lender collects payments from the borrower on both loans, and then pays the first loan out of the payments made by the borrower. The borrower then pays off the new loan, which includes interest payments to the lender. Wraparound mortgages are often used when the borrower cannot qualify for a traditional loan, such as when they have a poor credit score. They are also commonly used when the borrower is attempting to purchase a higher-priced property than they can afford, as the wrap-around mortgage can make the purchase more affordable. It is important to note that wraparound mortgages can be risky. If a borrower defaults on the payments, then the lender can take possession of both properties, leaving the borrower without either. This is why it is important to speak with a knowledgeable real estate lawyer before entering into such a loan.

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What is a wraparound mortgage?

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