Assume, subject to, or a wrap? What’s the difference?

Question

In terms of creative financing can you please help me understand the difference between assuming a mortgage, subject to original financing, and a wrap? I think I know the gist but want some reassurance.

Working on a direct mail lead where one of these options may come into play.

Thanks!

Working on a direct mail lead where one of these options may come into play.

Thanks!

Account Closed · Answer

1. Assuming a Mortgage - you are asking for bank approval, you are taking over the existing loan but you have to qualify by submitting income, credit, taxes, work history - just like applying for a normal loan. The seller is relieved from the loan.

2. Subject To - you begin making payments without involving the bank. The title gets transferred to your name. The seller is still on the hook for the loan. The seller has no recourse if you stop making payments. It trashes their credit if you stop making payments. It does not affect your credit.

3. Wrap - the original loan still exists. Another loan is created between you and the seller. The title gets transferred to your name. The seller makes payments to the bank as before and you make payments to the seller. If the Seller stops making payments to the bank, you have a problem. If you stop making payments to the Seller they can foreclose on you.Lots of detail left out for sake of being comprehensible.

There is also, Owner Financing, Land Contract, Lease Option, Contract for Deed.

Garrett Masiulis · Answer

@Mike M. Fantastic breakdown! I’ll continue my homework researching the nuts and bolts of each. Thanks again!