A wrap mortgage is a creative financing structure where a new seller-financed mortgage wraps around the existing mortgage. The original mortgage stays in place and must still be paid as agreed, while the buyer makes payments under the new wrap agreement.
Our preferred creative purchase structure when we are not buying a property for cash.
Tell us about the property, mortgage balance, and payment.
A wrap mortgage is called a “wrap” because the new mortgage wraps around the existing mortgage.
The seller’s current mortgage remains in place and must continue to be paid according to its existing terms. At the same time, the buyer and seller agree to a new set of seller-financing terms for the purchase.
This can create a flexible structure when a traditional cash sale does not produce the desired price or when creative terms create a better outcome for both sides.
At My Fair Market Offer, wraps are generally our preferred method of creative purchasing when we are not buying a property for cash.
A wrap mortgage can provide clearer documentation, stronger accountability, and better protections than a simple subject-to arrangement.
We like wrap structures because the seller has a written mortgage agreement with us. If payments are not made as agreed, the seller has clearer legal remedies.
That accountability should give sellers reassurance that we intend to make the payments and honor the agreement.
A wrap mortgage may allow us to buy at a higher price than a traditional cash offer, sometimes closer to retail value or even above retail value depending on the terms.
The new seller-financed mortgage terms are negotiable. Interest rate, amortization, payment amount, balloon date, and purchase price can all be structured based on the situation.
The wrapped mortgage underneath remains fixed and must continue to be paid as agreed.
We generally require a loan servicer so payments are handled by a third-party company instead of informally between buyer and seller.
For example, a seller may have a $100,000 existing mortgage on a property worth around $150,000.
In a traditional cash purchase, the offer may need to be lower because the buyer is bringing cash, taking repair risk, and absorbing resale or holding costs.
With a wrap mortgage, we may be willing to pay a higher price, such as $160,000, if the seller is willing to accept favorable terms.
For example, the new wrap terms might be structured as principal-only payments with 0% interest, amortized over 20 years, with a 10-year balloon payment.
Those exact terms are negotiable. The key is that the underlying mortgage being wrapped is not negotiable and must still be paid according to its existing terms.
Every deal is different, but when we consider a wrap mortgage purchase, we typically look for terms such as:
These terms allow us to offer a stronger purchase price while still making the deal work from a payment and risk standpoint.
We usually require a third-party loan servicer for wrap mortgage transactions.
The buyer makes payments to the servicer. The servicer then handles paying the existing mortgage being wrapped and sends the seller any remaining difference, if applicable.
This creates a cleaner paper trail, helps confirm payments are being made, and keeps the transaction more organized for both parties.
Wrap mortgages can involve important legal and financial considerations, including existing mortgage obligations, due-on-sale clauses, insurance, servicing, escrow, default rights, balloon payments, and title documentation.
The existing mortgage remains in place and must be paid according to its original terms unless the lender agrees otherwise.
Buyers and sellers should carefully review all documents and are encouraged to seek independent legal, tax, and financial advice before entering into a wrap mortgage transaction.
Tell us about the property, current mortgage, payment, and what you need to accomplish.