As a homebuyer, there may be several types of mortgages that you want to look into. Not everyone wants to get or can get a traditional mortgage loan, so you might be looking into options like wraparound mortgages instead.
A wraparound mortgage is a unique kind of mortgage because it gives the seller the option to keep their mortgage while giving a buy the option to wrap in what they owe into the mortgage. Essentially, the seller keeps the mortgage, and you, as a buyer, will make payments to the seller.
Keep in mind that this kind of mortgage often has a higher interest rate, because you’re covering the cost of the mortgage, its interest, and other expenses.
Is it a bad idea to get into a wraparound mortgage?
It can be, but it depends on the circumstances. For example, if you have no other option to qualify and know that you can make payments large enough to cover the mortgage, you should be in a good position moving forward. Normally, you’ll pay the seller, and the seller will pay the mortgage holder. However, with digital accounts as they are now, you may be able to pay directly as a special user on the account.
The seller may make an additional profit from the second loan because of the higher interest rate, so it’s important to understand that you will likely pay a greater share of interest than you would with a traditional mortgage loan. This can be off-putting to some people, but if you can build your credit or get your own mortgage in a few years, you may be able to buy out the wraparound mortgage and change the circumstances of the loan later on.
A wraparound mortgage isn’t the right solution for everyone, but it could be a good option for some people. If the seller is offering a wraparound mortgage, you may want to look into how much it would cost compared to other kinds of mortgages on the market and determine if it’s a feasible way to make a purchase.