On the downside are thoughts of purchasing depreciated property with depreciated stocks, adding a long commute, safety questions, and the fact that I would rather spend my time finding a new man - however remote the possibility. On the upside are the new tax credits for purchases and those for when I eventually sell. I have saved the difference and could finally qualify as a first-time homebuyer in the outer suburbs. Now that I’m paying only 60 percent of market value, I feel the landlord’s subtle pressure to move out. I am living comfortably and modestly in a rental unit that is governed by city rent-control laws. Unless your buyer puts up a lot of money - say 20 percent or 25 percent of the purchase price - I cannot recommend that you pursue this further.ĭEAR BENNY: I could use help with a rent-or-buy decision. Yes, the transaction is legal, but there are too many risks. We used these wraparounds in the early 1980s, when interest rates were very high and buyers wanted to take advantage of the existing lower rates that were already on the property. Your buyer has put up only $10,000 and can easily decide to walk away from the deal, leaving you (1) stuck with your existing mortgage and (2) having to foreclose on the property.Īdditionally, because your buyer is taking title "subject to" the existing mortgage, you (and your buyer) run the risk that the lender could exercise the "due on sale" clause and call the entire mortgage due and payable. You receive a 2 percent differential on your existing $300,000 (because your buyer is paying you 8 percent) and you also receive the full 8 percent on the remaining $190,000 ($490,000 minus $300,000).īut there is also a disadvantage. Each month, your buyer sends you a check based on the 8 percent interest rate, and you send your current lender the regular monthly payment you have always made. Your first mortgage carries an interest rate of 6 percent and the new second trust will be paid at 8 percent. This is a second mortgage, because your existing mortgage is not paid off at the closing (escrow). Title is transferred to your buyer, who pays you $10,000 in cash, and you take back a mortgage in the amount of $490,000. Let’s say that you sell your house for $500,000, and have an existing mortgage (deed of trust) on the property for $300,000. Can you enlighten me please? –BobbieĭEAR BOBBIE: Here’s how a wraparound mortgage works. I’m told they are quite legal, but I really need to know the pros and cons. I am a little leery of a small down payment with high-interest payments for a few years with a balloon at the buyer’s refinance later. DEAR BENNY: I have a full-price offer on my duplex that involves a wraparound mortgage.
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