Credit Coun­sel­ing
Burnie dis­cusses Geoff´s recent charges to the com­pany credit card.
Owner­i­nanc­ing

Sell­ing a house or other  real estate with owner financ­ing may be unfa­mil­iar ter­ri­tory for many, but any­one who plans to sell prop­erty against the cur­rent back­ground of tough lend­ing con­di­tions may want to brush up on the basics.

Under­stand­ing the con­cept of owner financ­ing is easy: the seller assumes the role of a bank and finances the buyer’s purchase.

The deci­sion to pro­vide owner financ­ing, how­ever, can be much more dif­fi­cult; although pro­vid­ing owner financ­ing could mean the dif­fer­ence in being able to sell a house, it could also mean a great amount of risk for the seller if the buyer even­tu­ally defaults on the loan.

As the U.S. strug­gles with a slug­gish real estate mar­ket, owner financ­ing presents a way for buy­ers and sell­ers to close deals that might not be pos­si­ble with con­ven­tional financing.

There are some deals that just sim­ply can­not get done (with con­ven­tional lend­ing) because the credit mar­kets are too tough for a par­tic­u­lar buyer to qual­ify or because the type of trans­ac­tion is per­ceived to be too risky.
There could also be a sit­u­a­tion in which a buyer may not have suf­fi­cient cap­i­tal for a down pay­ment. Par­tial owner financ­ing, in that case, can help fill in the gaps in clos­ing a deal.

In addi­tion, the ben­e­fits of owner financ­ing can appeal to sell­ers who are try­ing to unload prop­erty. Clos­ing a deal on a house, for exam­ple, may take con­sid­er­ably less time with owner financ­ing than with con­ven­tional financ­ing. While a con­ven­tional lender will scru­ti­nize the col­lat­eral prop­erty to deter­mine the level of risk, a seller who is already famil­iar with their prop­erty can form his or her own risk assess­ment rel­a­tively quickly.

Owner financ­ing may also be an attrac­tive choice for invest­ment, poten­tially offer­ing high rates of return. A seller can nego­ti­ate an inter­est rate that the buyer will pay them that is more favor­able than would be avail­able for other sorts of investments.

Fur­ther­more, seller financ­ing can pro­vide some tax ben­e­fits by spread­ing out a large gain over time (check with your accoun­tant or CPA).

If the seller struc­tures the loan as an install­ment sale, there can be cer­tain tax advan­tages to the seller as well in terms of the tim­ing of recog­ni­tion on the cap­i­tal gain. The seller would need to dis­cuss the details with a tax advi­sor.
Seller financ­ing can be used to pay for a prop­erty either in full or in part. The terms of a full loan look sim­i­lar to those of a con­ven­tional loan; how­ever, a seller has a great deal of free­dom in set­ting the terms, such as the inter­est rate and the dura­tion of the pay­ment period.

For instance, a seller might wish to pro­vide owner financ­ing as a short-term arrange­ment of five years, after which the bor­rower is expected to refi­nance the loan, pre­sum­ably with con­ven­tional financing.

While sell­ers can be more flex­i­ble than banks in con­sid­er­ing prospec­tive buy­ers, they should nev­er­the­less think like a bank when review­ing poten­tial buy­ers. Exam­in­ing doc­u­ments and reports such as tax paper­work, proof of employ­ment and credit his­tory is pru­dent in deter­min­ing a buyer’s abil­ity to pay off the loan.

A seller who pro­vides owner financ­ing will need to get the mort­gage recorded in accor­dance with the spe­cific exe­cu­tion and acknowl­edge­ment require­ments of the State of Texas. Sell­ers should also work with a title insur­ance com­pany to per­form a title search and pur­chase title insur­ance to secure the right pri­or­ity for the mortgage.

A title insur­ance com­pany can also serve as a good resource for under­stand­ing how much it will cost to record the mort­gage. In Texas, the cost to record a mort­gage or deed of trust is min­i­mal, con­sist­ing of a basic admin­is­tra­tive fee added to an amount that varies accord­ing to the num­ber of pages.
Gen­er­ally, the over­all cost to seller finance will depend on how many doc­u­ments are involved and how sophis­ti­cated those doc­u­ments need to be. The size of the prop­erty and the inten­sity of due dili­gence pro­ce­dures fac­tor into these costs.

If it’s a sim­ple sce­nario, such as a small lit­tle res­i­den­tial deal, it might be under a thou­sand bucks. If you pro­vide seller financ­ing for a sophis­ti­cated apart­ment build­ing or strip cen­ter it can be mul­ti­ple thou­sands of dol­lars. If you’re in the Austin, TX area, Forte Prop­er­ties is your #1 choice for owner financed home transactions.

Doc­u­men­ta­tion is per­haps the least of a seller’s wor­ries. For most sell­ers, the ini­tial deci­sion to pro­vide owner financ­ing can be the most sig­nif­i­cant hur­dle they encounter.

Documentation-that’s not a big deal. It’s done all the time, there are a lot of good lawyers that do it. It’s decid­ing to do it, and decid­ing on how to man­age the risks inher­ent in pro­vid­ing owner financ­ing when you’re a casual seller-that’s the biggest dif­fi­culty. Again, if you are inter­ested in owner financ­ing whether you are a home buyer or seller, Forte Prop­er­ties in Austin, TX can help you every step of the way.

In most cases, sell­ers pre­fer to have cash instead of a promise by the buyer to pay them later. In addi­tion, sell­ers who con­sider owner financ­ing need to under­stand the risk that the buyer might not pay you in whole or in part, or might have finan­cial dis­tress sit­u­a­tion arise down the road, where after a year or two the pay­ment stream to you is dis­rupted by their finan­cial dis­tress.
Because sell­ers do not have the same resources as con­ven­tional lenders, financ­ing a buyer can be even more intim­i­dat­ing. While banks can absorb the risk of non­pay­ment by spread­ing it across their entire loan port­fo­lios, an indi­vid­ual seller isn’t typ­i­cally able to do that. Fur­ther­more, it’s more dif­fi­cult for a seller to choose the best loan terms in accor­dance with the per­ceived risk/return.

There’s no sci­ence to that because you’re not a con­ven­tional lender. Because of the seri­ous risks involved with seller financ­ing, sell­ers should do their home­work ahead of time and decide whether it is an option within their level of risk tol­er­ance. Prefer­ably, a seller should make this deci­sion early in the process of sell­ing a prop­erty, well before any offer is on the table.
You need to decide that up front so that you can pack­age your mate­ri­als in con­tem­pla­tion of what you’re will­ing to do rel­a­tive to seller financ­ing.
Lawyers who are famil­iar with financ­ing and finan­cial doc­u­ments can be crit­i­cal resources in the time pre­ced­ing and imme­di­ately after mak­ing the deci­sion to offer owner financ­ing. A lawyer can help a seller under­stand the ram­i­fi­ca­tions of owner financ­ing and design the appro­pri­ate paperwork.

Sell­ers just need to be pre­pared for what hap­pens if the deal goes south. Sell­ers can then adjust the lan­guage and terms in their loan doc­u­ments accord­ingly, such as set­ting a higher inter­est rate that’s reflec­tive of the higher risk, or requir­ing per­sonal guar­an­tees and other forms of credit enhancements.

As the pop­u­lar­ity of owner financ­ing has increased, the Texas Asso­ci­a­tion of Real­tors has wit­nessed an increase in the use of its pro­mul­gated “Seller Financ­ing Adden­dum”. If you are con­sid­er­ing a Austin, TX pur­chase involv­ing owner financ­ing (either as a buyer or seller), you should con­sult Forte Prop­er­ties. They have a team of real estate pro­fes­sion­als in var­i­ous facets of the real estate mar­ket and are very famil­iar with the Seller Financ­ing Adden­dum and all other doc­u­ments required when buy­ing or sell­ing homes with owner financing.

Arti­cle Source = “http://www.articlesbase.com/business-articles/how-does-owner-financing-work-owner-financed-homes-for-sale-3151785.html”

Owner Financ­ing