Finance
In Alabama, a wraparound mortgage is used when:
AA buyer obtains a new first mortgage
BA buyer assumes responsibility for an existing loan while the seller carries a new junior mortgage encompassing the existing one✓ Correct
CA lender provides 100% financing
DA property is refinanced at a lower rate
Explanation
A wraparound mortgage allows the buyer to make one payment to the seller, who continues paying the underlying (existing) mortgage. The seller carries a new junior mortgage that 'wraps around' the existing loan.
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Key Terms to Know
Discount Points
Prepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Adjustable-Rate Mortgage (ARM)A mortgage with an interest rate that changes periodically based on a financial index, usually after an initial fixed-rate period.
Loan-to-Value Ratio (LTV)The ratio of a mortgage loan amount to the appraised value or purchase price of a property, expressed as a percentage.
Debt-to-Income Ratio (DTI)A lender's measure of a borrower's monthly debt obligations relative to their gross monthly income, used to evaluate loan eligibility.
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