Do you have a house to sell? Perhaps you’re thinking about selling, and maybe you’re thinking about Owner financing. You can sell your house with owner financing in Texas But if you have a mortgage on your house, you might be wondering, “Can I do owner financing in Texas if I have a mortgage on the property?” We get this question a lot so we decided to answer that question here… Keep reading this blog post and we’ll answer that question and give you some strategies to move forward…
You have options
is owner financing a good idea for the seller in Houston? However, That’s a very reasonable question and we’ll discuss about it in this portion…Homeowners who are thinking about selling have several options. They can list their home through an agent, or they can list it themselves, or they can sell directly to a buyer. And, many homeowners are discovering a simple strategy called “owner financing” or “seller financing” that allows them to sell their home to a buyer and collect regular payments that pay off the house:
- The buyer pays a down payment
- The buyer pays regular monthly payments
- When the agreed-upon price is paid, the title reverts to the buyer
Homeowners love it because it’s a great way to sell and a great way to find even more buyers – including those who might not be able to get traditional bank financing. Home buyers love it because it means more choices for them and they don’t have to impact their credit score to get a house necessarily.
You can do a seller financing agreement if you own your house outright. But what happens if you have a mortgage? Maybe you’re wondering, “Can I do owner financing in Texas if I have a mortgage on the property?”
The short answer is that In Texas, you can generally offer owner financing even if you have a mortgage on the property but there are important considerations and potential restrictions to keep in mind:
- Due-on-Sale Clause: Many mortgage agreements include a due-on-sale clause, which gives the lender the right to demand full repayment of the loan if the property is sold or transferred. While it’s not uncommon for sellers to engage in owner financing despite this clause, it’s essential to be aware of the potential risks. The lender could technically enforce the due-on-sale clause if they discover that the property ownership has changed.
- Assumption of Mortgage: Some mortgages allow for the assumption of the loan by the buyer. In this case, the buyer takes over the existing mortgage, and you may not need to worry about triggering the due-on-sale clause. However, not all mortgages permit assumptions, and there may be specific conditions and requirements.
- Notifying the Lender: It’s generally a good practice to inform your mortgage lender about your intention to engage in owner financing. While they may not explicitly approve or disapprove, keeping them in the loop can help avoid surprises and potential issues.
- Consultation with Legal and Financial Professionals: Before proceeding with owner financing, it’s crucial to consult with legal and financial professionals who are experienced in real estate transactions in Texas. They can help you understand the legal implications, potential risks, and necessary steps to ensure compliance with local laws.
- Compliance with State Laws: Texas, like other states, may have specific regulations governing owner-financing transactions. It’s important to familiarize yourself with these laws to ensure that your arrangement is legally sound.
Seller financing with a mortgage
Owner financing in Texas refers to a situation where the seller of a property acts as the lender for the buyer, instead of a traditional bank. This means that the buyer can make payments directly to the seller, and the seller holds a mortgage on the property. While having an existing mortgage on the property does not necessarily prevent owner financing, it is important to consider any legal requirements and restrictions that may apply.
In some states, you can create something called a “wrap-around mortgage” in which you extend a mortgage to a buyer (usually at a higher rate of interest) while still paying your mortgage to the bank. However, this is not legal in all states and all situations, and there are additional clauses that you should be aware of.
Details About wrap-around mortgage
A wrap-around mortgage, now called a “Roland Mortgage,” is a form of secondary mortgage financing that enables the buyer to acquire a property while assuming the existing mortgage and securing additional financing from the seller. In this financing arrangement, the seller retains the existing mortgage on the property, extends seller financing to the buyer, and consolidates the buyer’s loan into the existing mortgage. Monthly payments are made directly to the seller, often at an interest rate higher than the original mortgage. The seller typically utilizes the payments received from the buyer to cover the original mortgage.
To illustrate how a Roland Mortgage operates, consider the following scenario: Olivia is selling her property for $160,000 and carries an existing mortgage balance of $40,000 at a fixed interest rate of 4%. She opts to finance a loan for the buyer, Chris, who is interested in purchasing her home. Both Olivia and Chris agree to a $10,000 down payment and a $150,000 Roland Mortgage from the seller at a fixed interest rate of 6%. Chris makes monthly payments to Olivia for the second mortgage, enabling Olivia to pay off her original mortgage and retain the difference between the two payments.
It’s essential to be aware that Roland Mortgages come with various risks, so it’s crucial to understand the intricacies of this financing method before utilizing it for owner financing.
Can I Do Owner Financing if I Have a Mortgage on the Property? – You have choices
If you’re unable to sell with seller financing because of a mortgage, you have other options…
An alternative that might work for you is called rent-to-own, which has some similarities (such as ongoing payment and you own the house) and some differences (there might not be a down payment and the buyer needs to qualify for a mortgage from a bank at the end of the pre-established rental term).
If you are thinking about accepting owner financing but you still have a mortgage on your property, here’s another option for you: Get in touch with us and talk to us about your property. As experts in buying and selling real estate, we are aware of several options that you might not know about. We can walk you through those options and help you out ourselves or we can connect you with someone who can help you.