The short version
A wrap around mortgage, also written wraparound mortgage or just wrap, is a seller-financed sale where the seller's existing loan is not paid off. The buyer gives the seller a new promissory note for the purchase price less the down payment, secured by a new deed of trust on the property. The seller's original loan stays underneath. The new note is bigger than the old one and literally wraps around it.
Each month the buyer makes one payment on the wrap note. Out of that payment, the seller (or a servicer acting for the seller) sends the underlying lender its payment and keeps the difference. The seller is the buyer's lender and, at the same time, still the bank's borrower.
How the payments flow
Picture a house sold for $300,000 with a $200,000 bank loan still on it. The buyer puts $30,000 down and signs a $270,000 wrap note to the seller. The buyer pays the seller every month on $270,000. The seller pays the bank every month on $200,000. The spread in interest and principal between the two is the seller's return. The numbers are made up to show the shape; every real deal has its own.
The weak point is obvious once you see it. The buyer is trusting the seller to keep paying the bank. If the seller does not, the bank's lien is ahead of the buyer's, and the buyer's house is at risk for a debt the buyer has been paying. This is why many wraps run through a third-party servicer and why Texas wrote a statute about them.
Wrap file, $1,295. $250 opens it and the balance is due at closing. Loan documents, attorney drafts, the seven-day disclosure, servicer, insurance and closing packet on one calendar.
Wrap around mortgage vs subject to vs seller finance
- Subject-to: buyer takes title, existing loan stays, no new note to the seller.
- Seller financing: seller carries a new note; usually the property had no loan or the old one is paid off at closing.
- Wrap: both at once. Existing loan stays, and the seller carries a new note that includes it.
Because the existing loan stays in place, a wrap has the same due-on-sale question as a subject-to. The standard deed of trust gives the underlying lender the option to call the loan if the property is transferred. Read the due-on-sale explainer before anyone signs.
Wrap around mortgage in Texas: what the law requires
Texas regulates wraps directly in Chapter 159 of the Finance Code, effective January 1, 2022. The points that shape a wrap file:
- A separate written disclosure, seven days ahead. The wrap lender must give the buyer a written disclosure, in at least 12-point type, on or before the seventh day before the wrap loan agreement is signed. It includes the information required by Property Code section 5.016 and a notice about property insurance. The buyer dates and signs it.
- A real closing. According to a Texas real estate attorney's summary of the statute, a wrap lien is void unless the loan and the conveyance close at a title company or in an attorney's office.
- Payments to the underlying lender. The same attorney's summary says the seller must collect the wrap payment and pass the underlying payment through unless a third-party servicer is used. If the seller fails to pay the underlying lender, Finance Code 159.202 lets the buyer deduct what they paid to cure the default.
- Who can make the loan. A wrap lender has to be licensed, registered or exempt under the wrap and mortgage-originator rules. That is a question for the seller-lender and their attorney, not for the coordinator.
The disclosure clock matters in practice. A seven-day wait before signing is a date on the file calendar, and missing it has consequences: the attorney's reading of the statute is that a late disclosure gives the buyer a rescission window, longer if the disclosure arrives after closing, with a penalty on the seller-lender.
Other states have their own rules, and some title companies will not insure a wrap at all. Which title company to use is one of the first questions on a wrap file.
Why a servicer matters
A loan servicer is a company that collects the buyer's payment, sends the underlying lender its share, handles any escrow for taxes and insurance, and keeps a record both sides can see. On a wrap it does three jobs at once: it proves the buyer paid, it proves the bank got paid, and it takes the money handling out of the seller's hands. Servicers charge a monthly fee. Getting the servicer's account set up before closing, so the first payment is already scheduled when the deed records, is a standard step.
Insurance on a wrap
The buyer becomes the owner, so the buyer needs an owner's policy. The underlying lender still has a lien, so it still needs to be named. The seller, now a lender too, has an interest to protect. The Texas disclosure tells the buyer to buy their own property insurance. The policy and the names on it come from the insurance agent; the coordination job is making sure the binder is in hand and the right parties are listed before closing.
The file, step by step
- Contract in. Purchase agreement, parties, deal type. Checklist and calendar built, including the seven-day disclosure date.
- Existing loan reviewed. Recorded deed of trust pulled, mortgage statement collected, authorization signed so the lender will share information.
- Attorney drafts. Wrap note, wrap deed of trust, wrap addendum, the statutory disclosure and anything else the attorney decides the deal needs. Both sides should have counsel.
- Disclosure delivered and signed. Tracked to the day.
- Title opened at a title company willing to insure a wrap, or with a closing attorney.
- Insurance and servicer set up before signing.
- Closing and after. Settlement statement checked, signing, funding, recording, first payment confirmed with the servicer, closing packet sent.
A wrap has a statute behind it in Texas and its own rules elsewhere. Have a real estate attorney in the property's state structure the deal and draft every document. Dean Creative Closings coordinates the file and does not draft, advise, lend or decide whether a wrap is right for you.