Using an RMLO with owner financing

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Hey everyone,

So I'm looking to buy a house and resell it via owner financing; from what I've read and researched it seems like a smarter decision than renting it out. Now, it seems smart to hire an RMLO to originate the loan, but I just want to know, how does that work?

Do I just send in the mortgage applications to the RMLO, and they take it from there? Can I just do this with any mortgage officer? I keep seeing people talking about hiring an RMLO, but they do not go into the logistics. 

Yeah I am trying to figure this out down here in Texas also.  I understand that in order to do a WRAP or any kind of owner financing, I will need an RMLO to stay compliant with SAFE and Dodd Frank, 

Have you called any RMLOs?

Call them and tell them what you are doing and ask if that is something that they could help you with. If they cant, go on to the next one or ask them who might be able to help. 

Whether or not you need to use an RMLO due to SAFE and Dodd Frank comes down to how many seller financed projects a year you intend to do.   If you don't intend to do more than 3 per year, you are not required to us an RMLO.    You certainly can if you want.     We have found them in the past by going out to some of the local real estate networking facebook sites and posting for an RMLO who can help with a seller financing project.   We've paid between $800 - $1500 for an RMLO to help us.

We've done many projects without an RMLO.   You can vet buyers on your own by asking for paychecks, W2's, credit card statements, etc...   We also use an online tool to do the credit and background checks.   We use SmartMove (a Biggerpockets partner) and it gets you alot of what you need.

These are the Dodd Frank rules, in a nutshell:

INDIVIDUALS who finance one consumer transaction per 12 months are eligible for the One Property Exception.  They do NOT need a RMLO but DO have the following restrictions:  No negative amortization, adjustable rates allowed but must be tried to a  national standard and cannot adjust any earlier than 5 years after origination, balloons are allowed but recommended no earlier than 5 years after origination, and you do not have to verify the borrower or determine its ability to repay the mortgage loan. Entities such as LLCs, corporations, trusts or self-directed IRAs are not eligible for the One Property Exception.  Even if they do only one transaction per twelve months, they fall under the Three Property Exception.

INDIVIDUALS OR ENTITIES who seller finance 3 or fewer residential properties to consumers per 12 months are eligible for the Three Property Exception. They do NOT need a RMLO, but DO have to comply with the following restrictions:  No balloons allowed at all; no negative amortization; loan must be fully amortizing over a period  not exceeding 30 years; adjustable loan rates allowed but cannot adjust any earlier than 5 years after origination; Seller must determine, in good faith, that the consumer has a reasonable ability to repay the loan. It is not required they document how they arrived at the determination, but its a good idea to do it anyway, in case the transaction is challenged.

The SAFE Act differs from state to state, so I apologize that I cannot offer any advice for you on that. For you Alabama readers: Alabama was an early adopter and so, per the statutes, has a one property exception. HUD later came out with rules allowing a 3 property exemption, so late adopters have a 3 property rule. Alabama did not amend its statute from one property to three. On the other hand, the State Banking Department says they will not enforce the SAFE Act for people who do 5 or fewer transactions a year.

Sorry, forgot to mention in my answer above, if you want to seller finance with a balloon, then you will need to either fit within the One Property Exception or get an RMLO, even if you do three or fewer transactions per year. 

You get the Dodd Frank Three Property Exception ONLY if you meet the other requirements, such as no balloons. If you have a balloon, you are not eligible for the Three Property Exception. Most seller financing has a balloon, in my experience and observations.