What happens in wrap-around financing?

In wrap-around financing, the seller continues to make payments on the underlying loan while simultaneously creating a new loan to the buyer that wraps around the existing mortgage. This means that the buyer makes payments to the seller instead of directly to the lender, and the seller uses these payments to meet their obligations on the original mortgage. This arrangement allows the buyer to purchase the property without needing to qualify for a new loan, as they are essentially taking over the financing through the seller.

This type of arrangement can be beneficial in situations where the existing mortgage has a lower interest rate than current market rates, allowing the buyer to secure financing at a better rate without having to refinance or apply for a new mortgage. It also creates a streamlined process for both the seller and buyer, as it avoids the need for a traditional mortgage application.

Overall, wrap-around financing provides a unique option for sellers looking to sell their property and for buyers who may face challenges in securing conventional financing.