What is a Wrap Around Loan?
May 21, 2007
It has been along time since an agent or a customer asked me to explain a wrap-around loan.
Perhaps buyers are beginning to write offers requesting that the seller finance a portion of the purchase with the buyer executing a note secured by a second deed of trust against the property. If the seller presently has a low interest loan that does not have a "due on sale" clause, the seller may prefer a wrap-around loan secured by an "All Inclusive Deed of Trust (AITD") .
An AITD incorporates an existing loan into a new loan in which the seller is the beneficiary.
For example: The sales price is $350,000. The existing first trust deed secures a loan with a balance of 275,000 that has an interest rate of 4.5%. The buyer has only enough cash to make a $20,000 down payment. The buyer and seller agree that the seller will carry back the difference of $55,000 but wants it to be in the form of a wrap-around loan secured by an AITD.
with an interest rate of 6.5%. The loan against the property upon which the buyer will be making payments will be in the amount of $330,000 at an interest rate of 6.5%.
The AITD will be recorded along with the Grant Deed. The Buyer will have full title to the property. In the event the buyer fails to make payments and goes into default, the foreclosure will be by trustee. Any future liens against the Seller will not attach to the property.
The buyer should make certain that the seller is making payments on the underlying first. It is important that both buyer and seller understand the complete ramifications of this particular form of financing. It can be beneficial to both parties, but it requires a full investigation of its terms and conditions.
It has been along time since an agent or a customer asked me to explain a wrap-around loan.
Perhaps buyers are beginning to write offers requesting that the seller finance a portion of the purchase with the buyer executing a note secured by a second deed of trust against the property. If the seller presently has a low interest loan that does not have a "due on sale" clause, the seller may prefer a wrap-around loan secured by an "All Inclusive Deed of Trust (AITD") .
An AITD incorporates an existing loan into a new loan in which the seller is the beneficiary.
For example: The sales price is $350,000. The existing first trust deed secures a loan with a balance of 275,000 that has an interest rate of 4.5%. The buyer has only enough cash to make a $20,000 down payment. The buyer and seller agree that the seller will carry back the difference of $55,000 but wants it to be in the form of a wrap-around loan secured by an AITD.
with an interest rate of 6.5%. The loan against the property upon which the buyer will be making payments will be in the amount of $330,000 at an interest rate of 6.5%.
The AITD will be recorded along with the Grant Deed. The Buyer will have full title to the property. In the event the buyer fails to make payments and goes into default, the foreclosure will be by trustee. Any future liens against the Seller will not attach to the property.
The buyer should make certain that the seller is making payments on the underlying first. It is important that both buyer and seller understand the complete ramifications of this particular form of financing. It can be beneficial to both parties, but it requires a full investigation of its terms and conditions.
posted by shirley harry at 7:58 AM
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