What is a wrap-around loan?

"This method of seller financing is risky if the underlying first loan has a "due on sale" clause because the loan might be called due when the first lender becomes aware that the property has transferred title," says Dian Hymer, author of "Buying and Selling a Home, A Complete Guide," Chronicle Books, 1994.

A seller usually will want to incorporate a late charge to encourage the buyer to make monthly loan payments on time. "A buyer will probably want to stipulate that prepayment of the loan be without penalty.