If you sell land on owner financing, sooner or later someone asks: can I sell it on terms while my own loan is still on it? The answer is a wraparound mortgage. It is one of the oldest creative financing tools there is, and one of the most misunderstood.
Here is how a wrap works on vacant land, where it goes wrong, and how to set one up the right way.
What is a wraparound mortgage?
A wraparound mortgage lets you sell land on owner financing while your own loan stays in place.
Your buyer signs a new note to you for the balance of the price. That note "wraps around" your existing loan. The buyer pays you each month, and you keep making your payment to your lender. It is also called a wrap, a wrap note, a wraparound loan, a wraparound deed of trust, or an all inclusive trust deed (AITD).
The takeaway: you sell on terms without paying off your lender first.
Need a lender that allows wraps?
Most land lenders will not let you wrap their loan. We fund your purchase, keep our loan in place, and modify it into a long term loan at the same rate.
See Wrap FinancingGet a Free QuoteWatch: Wrap Financing in 4 Minutes
In this video I explain wrap financing for land and why most land lenders refuse it. A wrap lets you sell on owner financing while your own loan stays in place: your buyer pays you, and you keep paying your lender. Most lenders block that with a due on sale clause and make you pay a release on every lot instead. On a 40 acre tract split into eight lots sold with 5% down, that means putting over $106,000 of your own cash into releases while your buyers pay you over 10 years. With our program, our loan stays in place and becomes a long term loan at the same rate. You keep every down payment, your buyers pay you about $6,500 a month, and you pay us about $1,517. Run your own numbers in the wrap vs release calculator.
How does a wrap work on vacant land?
The buyer pays you, you pay your lender, and you keep the difference.
Here is a simple example. Your wrap note can even carry a lower rate than your own loan. Why would that still work? Because the wrap balance is more than twice the size of your loan.
| Example wrap | Amount |
|---|---|
| You owe your lender, at 14% | $40,000 |
| You sell the land for | $100,000 |
| Buyer's down payment | $10,000 |
| Wrap note to you, at 11% | $90,000 |
| Interest you collect in year one (about) | $9,900 |
| Interest you pay your lender in year one | $5,600 |
| Interest you keep | $4,300 |
- You buy the land with a loan.
- You sell it on owner financing. Your buyer gets the deed and signs a note and a mortgage or deed of trust to you.
- Your loan stays in place.
- Each month your buyer pays you and you pay your lender.
- When your buyer pays off, you pay off your lender and keep the rest.
Example only. Interest figures are for the first year and ignore principal paid down.
What are the risks of a wraparound mortgage?
The big one is the due on sale clause. The rest come from sloppy paperwork.
Most mortgages and deeds of trust have a due on sale clause. It lets the lender call the whole loan when you sell. A sale on owner financing is still a sale. If your lender did not agree to the wrap, it can demand its money, and you need cash fast.
- Due on sale: get your lender's agreement before you sell, not after
- Weak paperwork: use a promissory note and a recorded mortgage or deed of trust
- Payments: many sellers use a loan servicer to collect from buyers and keep clean records
- State rules: some states have extra rules for wrap loans, so have a local attorney review your documents
More on why most lenders say no, and what happens if you wrap anyway, in can I wrap my land loan?
Do land lenders allow wraps?
Most do not. We do.
We fund your land purchase and keep our loan in place while you sell on owner financing. When you start selling on terms, we modify our loan into a long term loan at the same rate as your purchase loan. Your buyers pay you and you pay us. No release payment at every lot sale. See our wrap financing program.
Should I use a wrap note or a land contract?
Use a note and a mortgage or deed of trust. I would avoid land contracts.
With a note and mortgage, your buyer gets the deed and you hold a lien. With a land contract, you keep the deed until the buyer pays off, and in many states that makes a default slow and messy. Land contracts are also much harder to sell or borrow against later. We do not buy them.
More in promissory note vs land contract and why to avoid land contracts.
When does a wrap make sense for land?
When you sell on terms and want your cash working on the next deal.
A wrap fits land flippers and subdividers who sell on owner financing with small down payments. Paying a lender a release on every lot eats your cash. A wrap keeps the down payments in your pocket. We compare the two in wrap financing vs paying releases.
Rule of thumb: sell for cash, pay releases. Sell on terms, wrap.
Buying land you plan to sell on terms?
See Wrap Financing →Frequently Asked Questions
What is a wraparound mortgage on land?
A way to sell land on owner financing while your own loan stays in place. The buyer’s note wraps around your loan. The buyer pays you and you keep paying your lender.
Is a wraparound mortgage legal?
Wraps are a common way to sell on terms, but a wrap can break your lender’s due on sale clause, and some states have extra rules. Get your lender’s agreement and have a local attorney review your documents.
What is the biggest risk of a wraparound mortgage?
The due on sale clause. If your lender did not agree to the wrap, it can call the loan when you sell.
Can the wrap note rate be lower than my loan rate?
Yes, if the wrap note balance is much larger than your loan balance. The interest on the bigger balance covers the interest on the smaller one.
Do any land lenders allow wraps?
Damen Capital does. We keep our loan in place while you sell on owner financing and modify it into a long term loan at the same rate.