BOULDER, CO, Sep 25, 2016—The world of loans can be a confusing, overwhelming place, whether you're purchasing your first home or working on a refinance. Below Phil Boren, Broker Associate of RE/MAX of Boulder, Inc. explains the wraparound loan, a unique financing option that—while tricky—should not be overlooked.
“Also called an all-inclusive mortgage, a wraparound loan is where a new home loan is placed in a subordinate or secondary position to the original mortgage and the new loan includes the unpaid balance of the first,” says Boren.
The wraparound allows the buyer to purchase a home without having to qualify for a loan or pay closing costs. The contract is made between the buyer and seller with the seller remaining on the original mortgage and title. The buyer pays the seller a fixed monthly amount and the seller uses part of this money towards the existing loan.
Sounds great right? Keep in mind that the seller benefits by offering the buyer a loan at a higher interest rate than the existing mortgage, and the lender profits from the difference in interest in the two loans.
“Wraparounds are not for novices and cannot be used when there is a legally enforceable 'due on sale' clause in the first mortgage,” says Boren.
Consult an attorney if you are considering this type of financing.
For more information on real estate, please contact RE/MAX of Boulder, Inc. at firstname.lastname@example.org, 303-441-5647, or RE/MAX of Boulder, Inc..
Phil Boren is a 26-year veteran real estate Broker and Realtor, specializing in consulting with buyers and sellers in Boulder, CO and along the Front Range of Northern Colorado. Held Real Estate Broker's license in Texas, California and Colorado; Managing Broker for over 200 agents and Brokers for Century 21 and RE/MAX franchises. Award-winning Realtor with experience in management, sales, marketing, relocation, appraisal, REO, BPO's, foreclosures, short sales; previously held the MAI designation from the Appraisal Institute. Experienced in both residential and commercial real estate and achieved the No. 14 individual ranking in the 5-state, Mt. States Region for RE/MAX International in 2001, based on sales volume. Received my BSBA in Finance and Real Estate from the University of Arkansas in Fayetteville, where he was a 4-year starter and 4-year football letterman for Hall-of-Fame coach, Lou Holtz.