Sellers are frequently reluctant to enter into owner financing because they fear that the buyer will default (fail to make the loan payments). However, the seller can take steps to reduce the risk of a default on their owner finance homes in Houston. The advice of a Texas Real Estate Attorney can help the seller by showing them how to do the following:
Loan Application for Owner Finance Homes in Houston
The seller should fully vet any potential borrower. One of the best ways to do this is to insist that the buyer complete a detailed loan application form, and thoroughly investigate
all of the information the buyer provides there. That includes running a credit check and vetting employment, assets, financial claims, references, and other background information and documentation.
Seller Approval of the Buyer’s Finances in Texas
The written sales contract — which specifies the terms of the deal along with the loan amount, interest rate, and term — should be made contingent upon the seller's approval of the buyer’s financial situation.
Loan Secured by the Home
When owner financing takes place the loan should be secured by the property so the seller (lender) can foreclose if the buyer defaults. The home should be properly appraised at to confirm that its value is equal to or higher than the purchase price.
Owner Financing Down Payment in Texas
Banks ask for down payments to insulate themselves from the risk of losing the investment. In addition to protecting the bank this also gives the buyer incentive to maintain and pay for the property. The invested buyer is far less likely to simply walk away at the initial sign of financial trouble. The seller financer should also protect himself or herself. A wise seller would likely want to collect at least 10% of the purchase price, this helps to protect against a soft and falling market where foreclosure could leave the seller with a home that can’t be sold to cover all the costs.
If a seller financer or buyer has questions about how the process can work for them, they should contact one of our Real Estate Attorneys in San Antonio, Houston, or Edinburg Texas.
Negotiating the Loan for Owner Financing in Texas
Not unlike a conventional mortgage, seller financing is negotiable. While a seller financer wants to protect against risk, they also do not want to price themselves out of a potential sale. To come up with an interest rate, sellers and buyers may want to compare current rates that are not specific to individual lenders. There are various services available on the Internet such as bankrate.com that have this information readily available.
The most effective way to insure competitive rates is to check for daily and weekly rates in the area (county/state) of the property, not national rates. Sellers should be prepared to offer a competitive interest rate, low initial payments, and other concessions to lure buyers.
Sellers that have owner finance homes in Houston, do not typically charge buyers points (each point is 1% of the loan amount), commissions, yield spread premiums, or other mortgage costs, during the owner financing term. This reduction in expense often means the seller can give a buyer a better financing deal than the bank. They can also offer less stringent qualifying criteria and down payment allowances.
However, a seller need not make to many concessions to the buyer. The seller is often providing a buyer that may not otherwise qualify with a path to home ownership and has a right to a decent return. A favorable mortgage that comes with few costs and lower monthly payments should translate into a fair market value for the home.
Our professionals can help you with Owner Financing in Texas
The buyer and seller will both likely need a Texas real estate attorney or a Texas licensed real estate agent; some may find both to be helpful. There are inherent risks, when it comes to owner finance homes in Houston, but a qualified Texas real estate attorney who is experienced in seller financing and home transactions to write up the contract for the sale of the property, the promissory note, and any other necessary paperwork can protect the parties’ interests.
Additionally, to insure that accounting is being handled properly and ease the paperwork burden, sellers can hire a loan servicing company to mail statements to the buyers, collect payments, and otherwise administer the mortgage.