Finance
A wraparound mortgage is an arrangement where:
ATwo lenders share the first mortgage equally
BA new, larger mortgage wraps around an existing mortgage, with the new lender making payments on the original loan✓ Correct
CThe property is used to secure loans on two separate properties
DThe lender wraps title insurance into the mortgage payment
Explanation
A wraparound mortgage is a seller-financing arrangement where the seller creates a new mortgage at a higher rate that includes the balance of their existing mortgage. The seller continues paying the original loan from the buyer's payments.
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Key Terms to Know
Title Insurance
Insurance protecting against financial loss from defects in a property's title that existed before closing but were unknown at the time of purchase.
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.
Discount PointsPrepaid interest paid to a lender at closing to reduce the mortgage interest rate, with each point equal to 1% of the loan amount.
Private Mortgage Insurance (PMI)Insurance required by lenders on conventional loans with less than 20% down payment, protecting the lender — not the borrower — against default.
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