A wrap around mortgage or an all inclusive trust deed is a way to purchase real estate with out having to qualify for a traditional mortgage. This offers a way for some people to buy real estate that normally would not be able to. It also offers some very beneficial perks to a seller to motivate them to use this type of seller financing. This is extremely helpful way to save your self loan fees and closing fees. As the real estate parcel does not have to go through the typical lending process. It is not with out its set of problems as well.
This type of mortgages works because the seller still owes money on the property but still wants to sell. The seller makes the agreement with the buyer for higher interest rate than he is paying and sometimes a larger payment as well. This allows the seller to earn extra money on the deal each month, However it does not alleviate the seller from continuing to pay his mortgage. This leaves the buyer still on the hook for the payments with the security of being able to foreclose on the property if they should need to. This agreement to sell is between the buyer and seller and in no way changes the terms and conditions the seller has with his/her original mortgage.
Some of the benefits to the Buyer include: they may not need to come up with a large down payment. If the seller has a low interest rate your rate is more likely to be lower then the interest rate that the buyer could originally qualify for. Since the contract is usually done through an escrow company, it can be set up that they pay the original loan first before sending the buyer the difference. This insures that the seller does not default on the original loan while you are still making payments.
This type of mortgages in not legal is some states so you need to do your homework. If you violate your state laws it can leave you having more legal issues then you could ever want. The seller also needs to read his mortgage agreement to make sure this type of deal dose not violate the original mortgage. If you are caught violating your mortgage it can cause your mortgage company to cause a lot of legal troubles up to your mortgage company to demand satisfaction of their loan immediately.
So this type of mortgage is very beneficial to both parties as long as you do your homework. Making sure that this type of mortgage is valid both with the state laws and the original mortgage holder.