Certified Residential Appraiser Practice Exam

What characterizes a Wrap-Around Contract?

1. The buyer pays the lender directly

2. The seller provides financing while keeping an existing mortgage

3. The buyer must refinance after a certain period

4. The seller takes a subordinate position in financing

The correct answer is: The seller provides financing while keeping an existing mortgage

A Wrap-Around Contract is characterized by the seller providing financing to the buyer while simultaneously retaining their existing mortgage. In this arrangement, the buyer makes payments to the seller, who then uses a portion of those payments to satisfy the obligation of their original mortgage. This type of financing is beneficial for buyers who may have difficulty obtaining traditional bank financing, and it allows sellers to keep their original mortgage in place while facilitating the sale of their property. This type of contract can be particularly useful in a tight credit market where obtaining a mortgage may be challenging for buyers. The seller benefits by making a profit on the difference between the interest rates of their existing mortgage and the rate agreed upon with the buyer. This structure makes the Wrap-Around Contract a distinctive option in real estate transactions that allows for more flexible financing solutions.