Wrap around mortgage advice

[Nathan H.]

Hi BP Community,

I’m looking for some advice on a mortgage wrap deal I’m looking to do. I’m the seller and would be carrying the financing on a $750,000 duplex. The underlying mortgage is a conforming 30 year fixed and has a balance of about $500,000 so I would be wrapping that into a seller carry loan at about $640,000 and receiving $110,000 for the balance (15% down).  Buyer is as quality as it gets, so my concerns aren’t with a default. If anyone has any experience they’d be willing to share with mortgage wraps, I’d love to hear about it. My specific concerns include the following:

- Will it hurt my ability to borrow from conventional lenders since I'll have a liability but no asset securing it. Instead I'll have a promissory note and DOT. Not sure how Fannie and Freddie look at this.

- What are the odds of the mortgagor noticing the house has been sold and calling the loan due, assuming the payments continue to be made on time? What is a fair contingency plan for if the loan does get called? Buyer responsibility and seller responsibilities. 

- How does insurance typically work? If the buyer provides their own, I would think the lien holder would notice a change in the policy holder, especially if there was a claim. If it remains in the sellers name, the seller has some liability I’m sure. 

thanks in advance for your help. 

[Cameron Moore]

Hi @Nathan H. I can answer the Insurance question! It is very simple, the Buyer purchases insurance for the property and makes the seller an additional insured. This adds $0 in premium and allows both to be protected. This works both ways (Seller adding buyer as additional insured). Hire an insurance broker, they are more flexible with underwriting.

For the other questions, I will direct you to my most trusted source regarding real estate investing @Kyle Mccaw