We understand how frustrating it can be to search for a home in Austin. Half the battle is learning the key terms and what they mean in regards to Texas real estate. So each week we bring you Key Term Tuesday – our way of helping you decode the industry jargon that keeps you from owning your home search.
What is Owner Financing?
Owner Financing is a generic term that refers to a financing situation where the owner essentially acts as the lender and accepts a promissory note in lieu of cash.
For example, in a typical home sale, the buyer would put 20% down and obtain a loan for 80% of the purchase price from a lender. The seller, however, would receive 100% of the price in cash.
In an owner financing transaction, the buyer might contribute 20% as a cash down payment and then give the seller a promissory note for the remaining 80%. A deed of trust securing the note would be recorded against the property as collateral. No institutional lender is involved, the seller only receives 20% of the price at closing, but will (likely) receive interest in exchange for their loan.
There are lots of legal and financial risks involved with owner financing so legal advice should be sought by both the buyer and seller before entering into a transaction of this type.
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