What is a wrap-around loan?
"This method of seller financing is risky if the underlying first loan has a "due on sale" clause because the loan might be called due when the first lender becomes aware that the property has transferred title," says Dian Hymer, author of "Buying and Selling a Home, A Complete Guide," Chronicle Books, 1994.
A seller usually will want to incorporate a late charge to encourage the buyer to make monthly loan payments on time. "A buyer will probably want to stipulate that prepayment of the loan be without penalty.
This should not cause a problem unless the loan payments are a source
of retirement income, in which case early prepayment could have
negative financial repercussions for the seller...
"Most sellers prefer to have a due-on-sale provision included in the
note, but this can be a negotiable item. Buyers who are concerned that
they might be forced to sell during a period of high interest rates can
request that the note be assumable by a future buyer, and sellers might
find this provision agreeable as long as they have the right to approve
the future buyer's credit report and financial statement," Hymer writes.
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Last Updated ( Tuesday, 29 July 2008 )
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