I've got a property under contract that I'd like to fix up a bit and then sell with owner finance. It's in 76014 (Arlington, TX)
I'm wondering if someone who has done owner finance deals in the area can give me some guidance on what the steps are.
Some questions I have:
1. Should I list this on the MLS? With an agent? Or is there a different place that ppl who want to buy with owner finance check more( like renttoownlabs.com)?
2. Is there in general a lot of interest in owner finance in the area? Do owner financed houses go for more or less than conventionally financed houses?
3. What level of rehab do I need? The same as a regular flip? Or should I be trying to keep rehab down so I can sell for less, to more appeal to those that would be interested in an owner finance?
4. Also the plan for this is a wraparound mortgage. (I will be getting a delayed finance loan after the close, before I sell.) Does anyone have an attorney and/or title company they recommend for this?
Thanks in advance!
There is a lot of information you need to process to sell on owner financing, with a wrap, and do it right. And by "right", I mean compliance with regs and avoiding trouble with buyer/owners down the road. There are several posts floating around these forums.
Figure out what your criteria are. If you are providing financing, do what a bank does and determine what your lending parameters are on the 4 C's. Cash. Credit. Collateral. Cashflow. Use an RMLO to check out the borrower. They will also address some of your compliance issues under CFPB (Dodd-Frank) and Texas S.A.F.E. Act.
Sales price: Don't try selling for much more than what the house will appraise for (despite what some "gurus" preach). Selling a $200K house (appraised) for $250K with $25K down looks a lot like fraud. You don't get a premium in the sales price because you sell on owner financing. Interest rate is your reflection of risk (risk = the probability that the return to the lender is something other than what is bargained for).
Interest rate: if your interest rate pushes north of 8.5-8.75%, appraisal and inspection are no longer optional under CFPB guidelines. That is called a "high cost loan" and additional requirements kick in. Some will say that if this is your first, you don't have to comply because there is a de minimis exception. To that, I'd say if you are going to do it, do it right from the start because if you end up exceeding the exception, the first deal could violate the regs because it is a rolling 12-month look-back.
Loan Servicing: There are annual reporting requirements under state and federal regs. Loan servicers will assist in compliance.
Closing/Wrap: Despite the legions of title companies, they are merely insurance agents. There are only 4-5 underwriters in Texas that actually issue title policy. Of those, there is only 1 that will issue title policy on a wrap transaction. I can't speak for any other attorney, but my docs have been reviewed and approved by that underwriter. Or rather, they didn't object to my closing docs. Besides the deed with vendor's lien, note, and deed of trust, I have 40-60 pages of notices and disclosures.
This is just a taster, so I'd say find a local club and people who have already done this.
@Jerel Ehlert That was a ton of valuable information. Thank you!!
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