A Wrap-Around Loan also known as a “Wrap” is a loan that is most commonly used with property with an outstanding loan. The seller lends the buyer the difference between the existing loan and the purchase price. The buyer’s loan payments should be sufficient to repay both the existing loan as well as the seller’s loan to the buyer.
Wrap-around loans are a form of owner financing. Some wrap-around loans require consent from the existing lender, especially on properties that include a “due on sale” clause in the loan documentation.
Wrap-around loans can also be structured such that the buyer’s payments are directed to the lender, rather than the seller, and the lender then forwards the buyer’s payment to the seller.
The owner (lender) should be able to charge a higher interest rate to the buyer that what is currently being paid on the loan. Buyers often seek wrap-around loans when they cannot obtain conventional financing or mortgages.