Explanation of Owner Financing

Hi everyone,
I’m another newbie to RE and this forum. I’ve found lots of information and will continue to read and post.
However, right now I am not clear on owner financing and lease/purchase.
Can anyone help me? My question is related to the actual transactions. Once I find a seller willing to lease/purchase a property to me, he offers owner financing (or not)…I find a tenant who at the end of year one wants to buy the home. Would a “double closing” be performed here? Also, how does the actual transaction work? How does the money come into play?

Howdy CJTerry__NC:

It is all owner financing but just different words and pieces of paper. Here in Texas we use a Deed of Trust when the seller actually sells the house with a deed to secure the owner financing with a nonjudicial (no court involved) foreclosure process. We also used contracts for deed until a few years ago when the CFD laws changed making them almost obsolete. There is also sub2 financing where the seller may get some cash but not enough to pay off their loan so they leave it in place and the buyer makes payment to the bank or better for the seller to them and then they pay the bank. The lease purchase method is also a form of owner financing because the seller is again like sub2 and CFD not paying off the loan and agreeing to sell you the property.

It can get confusing and you can have hybrids too where the seller gets some cash and agrees to owner finance a portion and the buyer gets a new loan. There are even seller who have no debt and will owner finance with a small down payment.

Unless you get the deed you will need to do a double closing when you sell the property. If you are smart you will go ahead and get the seller to sign the deed and get the title company (or attorney) to hold it in escrow until you pay the seller in full. This way just incase the seller dies or ?? you will have the deed and escrow instructions to be followed and there will be limited contact with the seller if any at all.

A title company or lawyer in some states will handle the money. There is no particular order that needs to be followed as long as it all gets done at the same time. You buyer can sign the documents first or last and take the money to the closing whenever. It is usually down within a few days either by mail or in person. You could save money on legal work and only get one deed prepared from your seller directly to your buyer but this is only a few dollars savings.

I hope I have helped explain the process and you have a little better understanding. Post more questions if you need further help.