If you have a basic understanding of owner financing in general and wraparound mortgages in particular, you can sell your house on a wrap, hopefully faster and at a better price than waiting for all cash or a new loan. Like the garden-variety real estate sale, selling on a wrap involves a contract, an inspection period, and a closing, but because there will be no new bank financing (and possibly no title insurance), the entire transaction could take 7 days or less. If you have a buyer who’s ready to sign up, here’s a step-by-step guide to selling your a house on a wraparound mortgage.
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Buying a house with a wraparound mortgage is one of many ways to buy real estate with owner financing. Any time a seller will finance part of the purchase of a home, it’s usually a good thing, especially if it means you, the buyer, don’t have to apply for a new bank loan. There are some seller financing options that tend to be a better deal for the buyer, particularly buying the house “subject to” the underlying mortgage and paying the seller a cash down payment and/or giving the seller a note for his equity. But buying on a wrap is certainly a good option too.
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The Texas legislature is at it again. Just a couple of years after severely restricting the ability of real estate investors to sell residential property on a lease option or contract for deed, our representatives have passed a law requiring a massive disclosure whenever a seller conveys a house without paying off the underlying mortgage(s). NOTE: this disclosure is not required if the buyer gets a title insurance policy, so if you always insist on title insurance when you sell a property, you won’t have to worry about this.
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Most people are familiar with the Latin phrase caveat emptor, which means “buyer beware,” but investors and other homeowners attempting to sell their houses on a “rent to own,” lease option, or lease purchase should learn a new phrase: caveat vendor, or “seller beware.”
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If you’re a Texas real estate investor, you will have many occasions when you will have to use the TREC form that most realtors use exclusively. My previous article explained how to turn the TREC form into an investor-friendly form. But if there are no brokers involved, or they don’t mind if you and your seller use a different contract form, you should offer to submit the contract form yourself. If you draft the contract, you are in a superior negotiating position, as the other party will have to react to what you propose, rather than the other way around. Drafting your own investor-friendly contract is not as difficult as you might think, and if you follow a few basic principles, you can put together a form that covers all the bases and tips the scales in your favor. You can download an investor-friendly form at the end of this article, or read on and draft your own agreements.
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If you’re a real estate investor in Texas, you’ve undoubtedly had to submit offers on the standard Texas Real Estate Commission form that real estate agents practically insist on using. Many realtors won’t take you seriously unless you submit your offers on the TREC form. The problem is that the TREC form isn’t necessarily investor-friendly (or even buyer-friendly). But never fear — if you make a few strategic changes to the contract, you can turn a seller-friendly TREC form into a contract you can feel good about signing.
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The wraparound mortgage is an excellent and perfectly legal way for investors and homeowners to sell their properties faster and for more money than by selling for cash only. It’s also a great way for realtors to get their listings sold before they expire and avoid losing their commissions.
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