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Owner Finance

Note: A qualified real estate attorney should be consulted to answer any questions as well as write the sales contract and promissory note.

What is owner finance?

Owner financing is also known as seller financing. This can be an option for people that can not qualify for a conventional bank loan.

In an owner finance agreement, the owner or seller will act like the bank. They will list the finance terms they are willing to offer. Owner financed deals are recorded with the County. The buyer’s interests is protected.  An additional protection is that a trustee has the deed instead of the seller. The Deed of Trust in an owner financed deal will show that the buyer is the rightful owner.

Just like a traditional bank loan, there is usually a down payment, amortization period, a possibly balloon payment and a set or adjustable interest rate. The terms can be customized to fit the needs of the seller and buyer.

Most owner-financing deals are normally short term and a typical arrangement might involve amortizing the loan over 30 years but with a final balloon payment due after five. The idea is that after 5 years the buyer may be in a better financial position and can now get a traditional loan.

How does it work?

A contract is negotiated. The contract should include a Seller Finance Addendum that will disclose the terms of the agreement. It should cover the balance to be financed, the down payment, interest rate, balloon payments, pre-payment penalty, etc.

Part of the closing documents will include a promissory note. This is a very important document; it will include all the loan terms, the loan amount, the amount of your monthly installments, interest rate, payment schedule, late fee terms, balloon payment (if applicable) and when and how you need to pay.

Most promissory notes will have a due-on-sale clause that will make the entire balance due if the buyer decides to sell the property before the balance is paid off.

A deed of trust will also be signed and it’s usually recorded at the county’s clerks office. This legal document protects the seller in case the buyer defaults on the loan. It will allow the seller to foreclosure of the property if payments are not made.

Like any option, there are pros and cons. Let’s explore these below.

PROS

  • Buyers that can not traditionally qualify through a bank might qualify through a seller directly. Banks sometimes have a very black and white way of looking at things. A seller might evaluate the buyer’s entire potential and make a decision based many other factors.
  • The loan terms can be customized to fix the parties needs.
  • Flexible down payments.
  • The closing may be faster. With a traditional loan the closing can take 30-45 days.
  • The closing costs could potentially be less. They might not include some of the normal lending fees

CONS

  • The loans terms can be less desirable.
  • The sales price and down payment requested could be higher.
  • Interest rates can also be much higher than market rates.
  • The amortization period might be too short or too long for comfort.
  • The seller might include a balloon payment after 5-10 years.
  • There usually is no appraisal involved so you might pay more that market value (Do your research).
  • There might be pre-payment penalties
  • The interest rates might not be fixed.

Ultimately owner financing can be a good option for both buyers and sellers but there are risks.

Buyers be warned

As a buyer thinking about owner financing, do your due diligence. Research the property, the community, the seller, etc.

  • Beware of homes that are exclusively being offered as owner finance. Why? Are they selling the home for much more that market value? Is the home in poor condition? Are they trying to avoid home inspections or appraisals? Ask the questions.
  • Did the seller ask your for a credit report, financial statements, proof of income, etc? If the seller is not looking into your finances, walk away. They should care if you can afford the home. Ideally you want your monthly payment to be less than 30% of your monthly income.
  • Is the home paid off? If the seller owes a balance on the home, there is a higher risk for the buyer. You may be punctual in your payments but what happens if the seller doesn’t apply your payment to his mortgage? His mortgage company can foreclose of the home. You can end up losing all the funds you have paid towards the home plus the home itself!
  • If the seller still owes a balance make sure that their mortgage does not have a due on sale clause. If they do have a due on sale clause, the bank can his bank demand immediate payment of the debt in full if the house is sold to you. If the lender isn’t paid, the bank can foreclose. To avoid this risk, make sure the seller owns the house free and clear or that the seller’s lender agrees to owner financing.
  • Balloon payments – with many owner financing arrangements, a large balloon payment becomes due after a set number of years. If you can’t secure financing by then, you could lose all the money you’ve paid so far, plus the house.
  • Consider having the home inspected. A home inspection is always an option for a buyer. These inspections are typically completed by a third party inspection company and will typically cost $350-550. If the seller does not allow you to have the home inspected, let this be a warning sign. What is he/she hiding?
  • The seller should provide you with seller’s disclosures. All seller should disclosure issues that they know to be wrong with the property.
  • Since a bank is not involved, there might not be an appraiser. In a traditional bank loan process, the bank will send an appraiser to evaluate the property’s worth. The appraiser will issue his opinion on value and condition. An appraiser is not an inspector, but if they see something that might effect the property’s value, they will note it and possibly force the parties to make repairs before the bank approves the loan. You as a buyer can order an appraisal of the property. If you are not sure of the market value of the property, speak to an REALTOR® or hire an appraiser.
  • Research the community and schools. Even if you don’t have school aged kids, schools can make or break a property’s resale worth. Properties zoned to poor preforming schools might not resale as well as those zoned to excellent schools.
  • Traditional owner-financed transactions often close in a lawyer’s office without title insurance, although it might be wise for the buyer in such transactions to at least obtain a title report indicating what liens, lawsuits, and judgments may affect the property. There has been fraud in this area. People that are not the true owners of a property might try to sell or rent a home they know to be vacant.
  • This is one of the largest purchases you will probably make. You might want to consider hiring a real estate attorney to review the terms of the contract prior to signing an agreement.
  • The owner will normally keep title to the house until the buyer pays off the loan. If the buyer defaults, the seller keeps the down payment, any money that was paid, plus the house.

Sellers be warned

As a seller you too run risks when owner financing a home. Do your due diligence before signing a agreement.

  • SAFE Act – Sellers who engage in more than five (5) owner-finance transactions in a 12 month period must now have a Residential Mortgage Loan Originator License according to the Secure and Fair Enforcement for Mortgage Licensing Act, also known as the SAFE Act.
  • If you owe a mortgage on the property, speak to your lender to see if you have a due on sale clause. If you do, then owner finance may not be possible. Once you sell the home your mortgage balance will come due entirely. Speak to your lender and see if they will agree to owner financing.
  • Make sure to review the buyer’s income. Their financial strengths, their credit or lack of credit, their available funds, etc. Speak to the buyer’s employer if they are not self employed. If they are self employed, considering looking at a few years of tax returns. You will decide what you find acceptable or not.
  • Think about hiring a servicing company to receive the payments and establish an escrow account. This way the payment can be applied to the balance owed directly.
  • The seller must determine that the buyer has the ability to repay the loan (and this must be supported by verifications and documentation).
  • Although you won’t have to worry about insuring the property or making repairs as needed, you do run the risk of having to foreclose if the buyer stops making payments.
  • Repair cost – if you do take back the property for whatever reason, you might end up having to pay for repairs and maintenance, depending on how well the buyer took care of the property.

22726 Hockaday Dr, Katy TX 77450

FOR SALE – 22726 Hockaday Dr, Katy TX 77450

Property Details

  • 3 bedrooms
  • 2 bathrooms
  • Bldg. 1742 SF
  • Lot 9,288 sf
  • Pool and covered patio
  • 2 car garage

Welcome home! This property will not disappoint. Beautiful home in West Memorial, Katy. Spacious living room with high ceilings and large windows offer an ample amount of natural light and great views of the yard. Large kitchen with picture window above the sink with views of the pool. Kitchen provides plenty of counter space and storage.  Appliances (refrigerator, washer and dryer) stay if you choose. Spacious master bedroom has direct access to the pool and covered patio.  Home has been freshly painted a neutral color. Perfect backyard for outdoor entertaining. Splish, splash in your own private pool or enjoy an evening under your covered patio. Home is move-in ready! Never Flooded.

Within minutes of several major freeways (West Park Toll Rd and I10), shopping and dining. Excellent location with excellent schools. Schedule your private tour today.

22726 Hockaday Dr, Katy TX 77450

22726 Hockaday Dr, Katy TX 77450

West Memorial neighborhood is located in Katy (77450 zip code) in Harris county. West Memorial has 1,150 single family properties with a median build year of 1976 and a median size of 1,830 Sqft. Source: HAR.com

Source: HAR.com

Source: HAR.com

7327 El Cresta Dr, Houston TX 77083

COMING SOON! 7327 El Cresta Dr, Houston TX 77083

7327 El Cresta Dr, Houston, TX 77083
7327 El Cresta Dr, Houston TX 77083
  • 3 bedrooms
  • 2 bathrooms
  • Bldg. 1,634 SF
  • Lot 7,144 SF
  • Cul-de-sac lot
  • Completely remodeled

Welcome home! This property will not disappoint. Beautifully remodeled home in Mission Bend. Spacious living room with high ceilings and decorative dark beams. Vast kitchen with custom built cabinets, gorgeous granite counters and deep sink. This amazing kitchen has new appliances (range and dishwasher), plenty of storage and lots of counter space. Both bathrooms have been completely remodeled. Home has been freshly painted a neutral color and new flooring throughout. This Cul-de-sac lot offers the home a large backyard; perfect for outdoor entertaining. Move-in ready! Never Flooded.

Within minutes of several major freeways (West Park Toll Rd, Hwy 6, I10 and 69), shopping and dining. Excellent location with good schools.

7327 El Cresta Dr, Houston, TX 77083

Mission Bend (fort Bend) neighborhood is located in houston (77083 zip code) in Fortbend county. Mission Bend (fort Bend) has 816 single family properties with a median build year of 1981 and a median size of 1,762 Sqft., these home values range between $114 – $156 K. The sqft. price change data is available through 1998. The median sold price/sqft is $96.23. Source: HAR.com

Source: HAR.com
Source: HAR.com

1135 W. Gardner St, Houston TX 77009

COMING SOON!

  • 2 bedroom
  • 1 bath
  • Building 942 SF
  • Lot 5,000 SF

Welcome Home! This adorable cottage is located in the Historical District in the Houston Heights. The home is appointed with two spacious bedrooms with cedar lined closets. Large living room with amazing windows and lots of natural light. Formal dining room, and large kitchen with plenty of counter and storage space. Beautiful original hardwood floors. This home has a 2 car detached garage and sizable backyard; perfect for outdoor entertaining. Enjoy an evening on this amazing front porch. You will love all the details and charm.

This tree lined streets and the beautiful mature trees makes this a perfect location. It’s minutes from downtown Houston, The Galleria, Memorial Park and the Energy Corridor. Enjoy all the Heights has to offer with nearby shopping, amazing restaurants, and parks.

Source: HAR.com

North Norhill neighborhood is located in houston (77009 zip code) in Harris county. North Norhill has 531 single family properties with a median build year of 1928 and a median size of 1,228 Sqft., these home values range between $308 – $509 K. The sqft. price change data is available through 1998. The median sold price/sqft is $386.09. Source: HAR.com

Source: HAR.com

6007 Oxford Lake Dr, Rosenberg TX 77471

COMING SOON!

6007 Oxford Lake Dr, Rosenberg TX 77471

PROPERTY DETAILS

  • 4 bedrooms
  • 2.5 baths
  • Bldg SF 2,970
  • Lot SF 8,705
  • Private pool
  • Lake views and park side with private gate access.

LOCATION, LOCATION, LOCATION! You could not ask for a better lot. This beautiful home is located in the Master Planned Community of Kingdom Heights with easy access to the community parks and several lakes where fishing is permitted. This home is lakeside and park side!

This immaculately presented, well-appointed 2 story home has a wonderful floor plan that lends itself to gatherings. Spacious living room with gas fireplace opens up into the kitchen. Prepare a gourmet meal in the ample kitchen with plenty of storage cabinets and counter space, large island, and plentiful pantry. The formal dining room lends itself to entertaining. Private home study with large windows and views of the front yard. Retire into the huge and serene master suite. Check out the master closet! 

Enjoy a beverage under your covered porch or splish splash into your own private pool. This specious backyard has no immediate back neighbors and views of a vast green space, one of the many community parks and two lakes. 

Zoned to excellent schools. Learn more about Lamar Consolidated ISD

Community Information

 
Welcome home! 6007 Oxford Lake Dr, Rosenberg TX 77471
Splish Splash into your our private pool
Easy access to one of the community parks right from your back yard!
Spend some time fishing in two of the many lakes within walking distance of your backyard. You may fish (catch and release) from the shore or from a canoe.
Enjoy this spectacular view from the spacious second floor game room
Located within minutes Sugar Land, Katy, Richmond and Fulshear.

KINGDOM HEIGHTS

This community will consist of 572 acres with 12 lakes and 39 parks. Kingdom Heights is located within minutes from Sugar Land Towne Centre, Katy La Centerra, and an array of local shopping, dining, entertainment and recreation opportunities.

Kingdom Height will eventually consist of 1,430 homes.

Other amenities include a beautiful Recreation Center, Fitness Center, Party Room, Resort Style Pool, Soccer and Baseball Fields. 

Home located in section 1. Source: http://www.kingdomheights.com/about/site-plan/
Kingdom Height
Community Center
Community Pool
Community pool, park and lake.
One of many community lakes

Price Trends – Kingdom Heights
Tax Rate

Home Staging Tips, plus more! You’re invited

 

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Annual review of your escrow account

What is escrow?

Your mortgage payment is made up of the following:

  • Part goes toward your mortgage to pay your principal and interest.
  • The other part goes into your escrow account for property taxes and insurance premiums (like homeowners insurance, mortgage insurance, or flood insurance).

When you purchase a home and put down less than 20%, the lender will requiere that you escrow your taxes and insurance. An account is opened at the time your home is purchased. The funds within the account are used to pay your property taxes and insurance premiums. These are paid by the lender directly using these funds. This typically helps the home owner because you don’t have to save for these funds separately.

In Texas we pay property taxes in arrears. In Jan of the current year, you are paying the past year’s property taxes. By “property taxes” I’m referring to property, School, MUD, LID and/or Drainage Taxes (not all applicable for all).  It might look something like the image below.

At the beginning of the year I’d suggest you do two things:

  1. Make sure that your taxes have been paid. Lenders make mistake and sometimes overlook a payment. Taxes are due by Jan 31st so make sure that the payment is applied before that date.
  2. Review your escrow account for errors, shortages and overages.

#1 Confirm Payment

Go into the jurisdiction’s website and make sure your balance is zero. If there is a balance owed make sure to follow up with your lender.

#2 Yearly escrow review

Property taxes and insurance premiums change over time. Most lenders will review your escrow account each year to make sure you’ll have enough to cover your expenses. To help with any unexpected increases, you need to keep a minimum balance in your account at all times. It’s normally calculated to not be more than 2 months of escrow payments (but this will vary by bank).

The lender will add your taxes and insurance and divide this amount by 12. This is the minimum amount you need in your escrow account. Normally the lender will want at least 2 month cushion to cover any potential increases in taxes or insurance. Most lender will send you an analyzes by mail or online.

Shortage

If you have an escrow shortage due to an increase in your taxes or insurance premiums, you are responsible for the difference. The bank will send you a notice stating the amount outstanding. It’ll be your choice how you handle it. You can either pay the entire shortage in one lump sum or you can choose to have the amount spread out over the coming year. This means if your shortage is $500, expect to pay an additional $41.67 each month the following year to make up the shortage. Your payment might also increase more as the lender increases the amount going into escrow to pay the next year’s taxes and insurance. In this example you might see an overall increase of approximately $80-100

Please note that if you choose to pay the total shortage in one lump sum, your payment will still increase to cover next year’s potential shortage.

Surplus

If you have too much money in your escrow account, you might get a refund check from the lender. This usually occurs when taxes go down or payments are overestimated. The lender will pay the appropriate amount to each jurisdiction. Whatever is left goes to you, minus their desired cushion. You should receive notice that you have an escrow surplus and will receive a check not long after that. If this doesn’t happen, contact the lender for further details.

Going Forward

The lender should repeats this process every year but don’t relay on the lender to foresee issues. Be proactive! Before May of every year you will get your proposed assessed value from the tax jurisdiction. Review these statements. Has it increased? decreased? How will this effect your escrow balance?

To avoid unpleasant surprises, pay attention to correspondence from your insurance company or taxing jurisdictions. If you’re aware that your payments will increase, you can put additional money towards your escrow each month to avoid a shortage. If you see that your payments will go down, you can contact your bank to try to decrease your monthly escrow payments.

You can ask your lender to analysis your escrow account at any point. You do not have to wait for them to schedule the review. Increases or decreases in your annual tax or insurance bills may cause your monthly mortgage amount to change.

You can (and should) protest your taxes. The protest deadline is May 31st of each year. The final amount is established by the final quarter of each year.

For more info: Tax Protest

Chewy Coconut Cookies

 

INGREDIENTS

  • 1 cup all-purpose flour
  • ½ teaspoons baking soda
  • ½ teaspoons baking powder
  • 1 tsp salt
  • ½ cups salted butter, softened
  • ½ cups brown sugar
  • ½ cups granulated sugar
  • 1 whole egg
  • 1 teaspoon vanilla
  • 1-½ cup shredded sweetened coconut

DIRECTIONS

Preheat oven to 350ºF.

In a medium bowl, sift together flour, baking soda, baking powder and salt. Set aside.

In a mixing bowl, cream together the butter and sugars. Add the egg, mix well. Add the vanilla, mix well.

Slowly add the flour mixture to the butter mixture, mixing well after each addition. Once all the flour is combined, add the shredded coconut and mix.

Line a baking sheet with parchment paper and spoon 1 teaspoon of batter onto pans. Dough spreads while baking, so leave ample space between dough balls.

Bake for about 8-10 minutes, or until edges are browned.

Remove from oven and cool on a cooling rack.

 

VARIATIONS AND TIPS

  1. Add 1/2 cups of chopped pecans for a yummy variation
  2. Let cookie cool completely moving them off the pan. Cookies will be very softs right out of the oven
  3. You can make the batter in advance. Scoop into portions and freeze. You can take them from the freezer to the oven. You might need to add 1 more minute to the calling time. The cookie will last 2-3 months in the freezer.

Dumplings, dumplings and more dumplings

 

INGREDIENTS

  • 1 pound well-ground, fatty pork
  • 1 pound Napa cabbage, rough slices
  • 1 tablespoon fresh grated ginger
  • 2 tablespoons water
  • 2 scallions, sliced
  • 4 tablespoons soy sauce
  • 1 tablespoon Chinese cooking wine or sherry
  • 2 teaspoons sesame oil
  • 1 teaspoon fine salt
  • Pinch of white pepper
  • 1 package frozen or fresh dumpling wrappers
  • small bowl of water

DIRECTIONS

Pork filling:

Bring a large pot of water to boil over high heat. Add the cabbage; blanch until just wilted. Using a slotted spoon, remove cabbage to strainer set over a large bowl. Press down on cabbage to squeeze out all liquid. Transfer to cutting board; roughly chop. Combine onions and pork, add ginger, Add the soy sauce, cooking wine, sesame oil, salt, and pepper to the meat mixture. Stir in chopped cabbage until completely incorporated.

Dumplings:

Using a spoon, place one heaping tablespoon of dumpling filling in the center of the dumpling wrapper. Using your fingertip, wet the outer edge of the dumpling wrapper with water. Fold up the sides of the dumpling into a half-moon shape. Pinch the edges of the dough until completely sealed. Do not overfill the dumplings. If any filling comes out, remove some and seal the dumpling completely.

Cook:

Boiled dumplings: To cook the dumplings, gently lower them into a medium pot of boiling water and boil for approximately three to five minutes. They are done when the dumpling skins are translucent and the dumplings have been floating for about three minutes. Remove from pot carefully with a slotted spoon.

Pan fried dumpling: Add 2 tbsp o oil in a pan, add on layer of dumplings, fold side up. Add 1/2 cup of water and cover. Steam the dumplings for about 4 mins. Dumpling wrapper with be translucent. Uncover and continue cooking until all the water evaporates and the dumplings are golden brown on the bottom side.

Fried: Heat oil and fry each dumpling until golden brown.

Serve hot with your favorite dumpling sauce

 

VARIATION AND TIPS

  1. You can freeze dumplings raw for up to 2 month.
  2. Bacon Cheese Burger dumplings: for filling combine  2 cups medium shredded sharp Cheddar, 1/3 pound thin-cut cooked and chopped bacon, 1/2 tablespoon kosher salt, 1/2 tablespoon freshly ground black pepper, 1/2 large red onion, small diced, 8 ounces 80/20 ground beef. Serve with ketchup and mustard
  3. Shrimp and onion dumplings: for filling combine: 1 lb chopped deveined and cleaned shrimp,  3 sliced green onions, 1/4 tsp grated ginger, 1 clove grated garlic, ½ teaspoon salt, ½ teaspoon ground black pepper, 2 teaspoons sesame oil.
  4. Buffalo Chicken dumplings: for filling combine 1 lb ground chicken, 1 cup of buffalo sauce, 1 cup grated colby cheese, 1/2 cup cream cheese, 1/4 cup blue cheese.
  5. Add 1/2 cup of chopped kimchi into the recipe above for pork and kimchi dumpling
  6. Simple dipping sauce: 4 tbsp Soy sauce, 1/8 tsp grated ginger, 1 tsp Sriracha sauce, 1 tsp sesame oil. Combine and serve with dumplings

You can fill these with anything! Share your filling ideas 🙂

Bolognese Sauce

 

INGREDIENTS

  • 1/2 cup extra-virgin olive oil
  • 1 medium onion, finely diced
  • 1 large carrot, finely diced
  • 1 medium celery rib, finely diced
  • 1 pound ground beef
  • 1/2 pound ground veal or 1/2 pound ground pork
  • 5 large garlic cloves, chopped
  • 1 cup dry white wine
  • 2 tbsp tomato paste
  • 3 cans of small diced tomatoes
  • 1 cup water
  • 1 bay leaf
  • Salt and freshly ground pepper to taste
  • Freshly grated Parmesan, for serving
  • 1lb pasta

DIRECTIONS

Cook onions, celery, carrot, and garlic in oil. Use a 8-quart heavy pot over moderate heat, stirring occasionally, until softened, about 5 minutes. Add Beef and veal/pork and cook over moderately high heat, stirring and breaking up lumps, until browned, about 6 minutes. Stir in tomato paste. Cook for 4-5 minutes on low heat. Deglaze the pan with wine, water, add diced tomatoes, gently simmer, covered, until sauce is thickened, 1 to 1 1/2 hours. Add salt and pepper and remove from heat.

Cook the pasta for 1 less minute than stated on package. Toss into sauce and finish cooking. If needed add a little pasta water into the mix. The sauce should evenly cover the pasta. Add grated parmesan cheese to taste and stir.

Serve with more parmesan cheese 🙂

 

VARIATIONS AND TIPS

  1. Sauce may be made 3 days in advance, cooled before you refrigerate. You can also freeze the sauce (no pasta) for up to 2 months.
  2. This same sauce can be used for lasagna, so yummy!
  3. Add chili spices (2 tbsp chili powder and 1 tbsp cumin) and 1 can of beans to make a great chili.  Serve with corn bread or fritos. Top with cheddar cheese and onions