How to Assume a Wrap-Around Mortgage
A wrap-around mortgage is a tool that is often used in seller financing. The current owner to sells the home for more than what is owed on it and the buyer pays the owner directly. The seller then pays the original mortgage holder and keeps the remainder. Sometimes, the seller is also the bank, which may require more paperwork. Assumable home loans used to be far more common than they are today. Lenders now have many more restrictions and qualifications as to who can assume a loan.
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Instructions
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Research the wrap-around mortgage loan you want to assume, including loan payments, the loan balance, the due date of the loan, the interest rate and who holds the loan. Usually, a wrap-around mortgage is the only type of loan that is assumable except for those made by the Federal Housing Administration or the Veteran's Administration.
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Consult an escrow company about creating the wrap-around document for you, with the terms agreed upon by both the seller and the buyer. An experienced real estate broker and the lender can help you define these terms.
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Obtain consent from all parties, including the lenders, to assume the mortgage. If one of the mortgage companies does not agree, they can call the loan in full and, if not paid, foreclose on the home.
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Make your payments to the seller, usually the mortgage company or homeowner, who then makes payments to the original mortgage holder.
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Open a bank account in both the buyer's and seller's names if there is concern that the seller will pocket the money paid and not pay off the original mortgage.
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Tips & Warnings
Be wary of lenders who offer to refinance your mortgage and pay your mortgage company for you. These are often wrap-around scammers and you can end up losing your home. In addition, anyone who says that you can wrap-around a mortgage by using a title or escrow company without informing the lenders is likely running a scam as well. Escrow companies are now required in many states to report changes of ownership.
