Q: Why should I consider owner financing instead of waiting for a Buyer who can pay cash or get a mortgage loan from a lender?
A: There are several reasons to consider owner financing:
1. Sellers can often get higher prices for their homes in an owner-financed sale (no appraisal is required)
2. The sale can close much quicker, and without the uncertainty of whether the Buyer’s mortgage loan will be approved by the lender
3. After receiving the Buyer’s down payment at closing (10%-20% of the sales price), the interest rate of 6%-8% on the Buyer’s note, which is secured by a lien on the house, provides a much better return than most investors can receive on their cash in the current market
Q: What are the usual terms of the loan in an owner financing?
A: No two deals are exactly alike, but we generally see the following terms:
1. Interest rate of 6%-8% per annum
2. Amortization calculated at 30 years, but with balloon payment becoming due in 3-7 years
3. 10%-20% down payment required, plus Buyer’s share of closing costs
4. Monthly escrows, at least for property taxes, are usually required by Seller, in addition to the principal and interest due each month
Q: What if the Buyer fails to make a mortgage payment?
A: The Seller can foreclose on the property after: 1) Buyer has been in default for 30 days, 2) a 20-day notice is provided to Buyer, 3) a different 21-day notice is provided to Buyer, 4) on the first Tuesday of the following month (about 3-4 months timeframe). A foreclosure attorney can assist the Seller with this process.
Q: How can I complete an owner-financed transaction?
A: Your Realtor® can help market your property to Buyers who are looking for owner-financed properties, and help you complete your sale contract, and a law firm and title company (Infinity Title has both under the same roof!) can prepare the legal documents and close your transaction.
1227 Heights Boulevard ♦ Houston, TX 77008 ♦ (713) 862-6600
1035 Dairy Ashford, Suite 115 ♦ Houston, TX 77079 ♦ (281) 752-8888