From time to time our real estate investment firm will offer to purchase a piece of property using an owner finance option called a "wrap". This method of selling is sometimes referred to by the term(s) "wrap around mortgage" or an "agreement for sale" but regardless of the name, it is used when a home owner could benefit from selling their home quickly and easily. Let's explore.
Let's assume Sally Seller bought 123 Main St during the housing boom and 10 years has passed. At one point she may have fallen behind on payments and considered a loan modification or a short sale. Luckily she was able to "procure' her payment arrears and bring her loan current so she did not opt for those methods of fixing her problem.
However years later although some equity has returned Sally finds herself in a situation where she is close to falling behind on her payments again and in fact has little to no equity to cover the "traditional" costs of selling a home. These are things like the "title fees", "attorneys fees" and/or 'agent commissions.
She knows she wants to sell but can not come with money out of pocket to the closing table.
Well one option she has is to sell on terms. You see Sally has the legal right to sell using "owner financing". There are many kinds of owner financing such as Subject 2, Contract for Deed however she chooses to sell using a "mortgage wrap". This is a case where the current mortgage stays in place and the buyer simply wraps a second mortgage on the property and agrees to make the new payments.
All is negotiable. The interest rate can be 0% which is known as an "exact wrap". The term can as short as (3) years or as long as (10) years. In any case, the new buyer is the legal homeowner but the original mortgage stays in place until a future date. At some point the expectation is that the buyer applies for their own financing and satisfies both mortgages.
Remember a mortgage is simply a lien and homeowners can encumber their home with all types of liens including second mortgage and home equity lines of credit. Simply think of the wrap as a second mortgage but instead a bank loaning the funds, the seller has loaned to the buyer a new note.
This option works great for sellers who want to avoid foreclosure or a short sale to salvage their credit. It can also be done quickly in as little as (2) weeks from start to finish.
As an investment company we can even offer a low down payment and to pay off 100% of the past due mortgage payments.
Are you in a situation where you can benefit from selling your home on terms? Call us today!
Nationwide Home Buyers