Owner financing is a time tested, proven method of selling property. But in the late 1990′s and especially in the early-mid 2000′s, the availability of easy money made owner financing unnecessary. It became a lost art. However, the tightening credit markets have brought owner financing back out of the closet.

It’s a Seller’s Market

Anyone who has sold a property with owner financing knows the benefits are substantial. You sell for a better price, sell faster, with less cost and less overhead. These are just a few of the benefits that stand out.

With owner financing, you literally move from a buyer’s market to a seller’s market. The Houston area MLS listed a little over 35,000 homes active on the market in mid October 2010. Just over 800 of these offered any owner financing (less than 3%). The fact is, you eliminate 97% of the competition when you switch to owner financing. You leave the buyer’s market behind and go to a seller’s market. There are FAR more buyers looking for owner financed homes that there are homes available.

How powerful is owner financing? Profit swings of 10-20% are common. The change can be SIGNIFICANT!!

RESPA and TILA: Do you have to comply?

RESPA is the Real Estate Settlement Procedures Act of 1974. TILA is the Truth In Lending Act of 1968. These generally require that a lender provide a Good Faith Estimate and a Truth in Lending Disclosure to the buyer. However, both acts apply only to “federally related transactions”. Unless you are required to comply with federal guidelines, you should be exempt from compliance.

The general rule in Texas is this: If you are doing 5 or fewer transactions in a 12 month period, you do not need to be licensed. However, on the 6th transaction (generally), you are now required to hold a federal mortgage license. This puts you in “federally related transaction” status and you must now comply with RESPA, TILA, and other regulations.

This is for informational purposes only. Consult an attorney for specific guidance.

Success Story Spotlight

Owner finance can be a very powerful sales technique, both for investors and individual homeowners. It works particularly well in situations where traditional sales techniques or the numbers simply don’t work.

Case in point:

Seller has been transferred to another state and was trying desperatly to sell. Property was listed for sale with RE/MAX but it just wasn’t moving. In 5 months, they had received only one offer and it was $15,000 less than payoff (property was listed at $175,000). The owner decided to offer owner financing and in three weeks they had multiple offers. The owner decided to accept an offer at $200,000 with $30,000 down. The buyer was a mid 500 score that should be able to refinance in approximately 6-9 months. While waiting for refinance, the seller will enjoy a positive cash flow and approximately $18,000 he received at closing (after closing costs).

Bottom line: the seller walked from closing with a substantial amount of cash, a positive cash flow each month and was able to sell a property he was otherwise unable to sell. The buyer gets a property he could not otherwise buy and should be able to refinance to a 4.5-5% rate FHA loan (market rate) in 6-9 months. Everybody wins!