What Is In A Wrap Around Mortgage?
Have you ever had that moment at your favorite fast food restaurant when you are staring at the menu and there are just so many selections, that overwhelmed feeling sets in? Many newbie investors find that same feeling of being overwhelmed with all the choices when it comes to deciding what type of deals to do.
Where To Start?
There are a many different variations to owner finance transactions, and the first place to begin is defining what they are, and what they are known as when it comes to real estate investing. I will address the most common here.
Straight Owner Finance
A straight owner finance transaction is when the seller owns the property free and clear and they are creating a lien or mortgage to offer you financing. This is also referred to as: Owner will Carry, Seller Financing or a Private Mortgage.
This is fairly new terminology and it means exactly what it says. This is when the seller has an underlying lien on their property and they assign their current mortgage payments over to a buyer.
Seller Carry-Back/Owner Carry-Back
This type of transaction is when you are able to obtain a first lien from a traditional lending source such as a bank, and the seller/owner “carries back” a second lien for the remainder of the purchase price. This is also referred to as a private mortgage.
Another popular financing strategy is the Wrap Around Mortgage. This has many advantages to both the buyer and the seller.
Seller Advantages with the wrap around mortgage strategy:
1. The seller can sell their home fast!
— With the wrap around there is no need for a bank appraisal.
— There is no long wait for loan approvals.
— Many fees associated with the traditional real estate transaction are eliminated.
2. The seller can get the price they are asking for instead of selling at a lower market value.
Buyer Advantages with the wrap around mortgage strategy:
1. The buyer can buy the house regardless of their credit history. The approval is up to you.
— One of the biggest buyer pools includes the self-employed, many of these worthy buyers cannot qualify for a loan, not because they can’t afford the payment, but because they don’t have the perfect credit history.
— Many past homeowners lost their previous homes to foreclosure but are now back on their feet and ready to buy again, however they don’t qualify for a bank loan because they have negative credit.
Remember when working with buyers who have questionable credit, ask for a higher down payment to protect you and your seller’s interest in the house. If they don’t pay the payment they will lose their down payment.
Seller Disadvantages with the wrap around mortgage strategy:
1. Due On Sale Clause
The “due on sale clause” allows the lender to demand total payment of the loan balance when your house is sold. It is not a law enforced by city, state or federal but more of a contractual right of the lender.
To avoid this from happening before proceeding with a wrap-around mortgage strategy make sure you get the advice of a real estate lawyer who has done wrap-around mortgages.
Want to Know More About Wrap-Around Mortgages?
If you want to learn more about owner financing, check out our coaching and products tab for new or upcoming programs.
If you are looking for a knowledgeable lawyer who is an expert in this area of owner financing make sure you check out our Legal Corner.
If you’d like to learn more about building passive income by buying and selling real estate for profit with no money down using strategies like Subject-To and wrap-around mortgages, then check out our very affordable REI Rockstars Back Stage Access Coaching Series for both new and seasoned investors!
If you prefer not to stay in the middle of transactions and simply want to sell your contracts for a quick fee, then you’ll want to learn more about how to do mortgage assignments and wholesaling, and we teach that in our coaching series as well! For under $100/mth, you’ll learn Four (4) No Money Down Real Estate Investing Strategies so that you can better evaluate the deals you come across in order to make maximum profit!