Quick Answer
Owner financing (seller financing) allows the seller to finance part or all of the purchase price. Texas law permits this structure, but it must comply with applicable lending laws. The seller typically retains a lien on the property through a deed of trust or mortgage, and the title company facilitates the closing and recording.
Owner financing, also known as seller financing, is a popular transaction structure in Texas real estate. It allows buyers to purchase property without traditional bank financing and allows sellers to earn interest on the financed amount.
Important Legal Notice
This article provides general educational information only. Owner financing transactions may be subject to federal and state lending laws, including the Truth in Lending Act (TILA), Regulation Z, the SAFE Act, Dodd-Frank Act requirements, usury limits, and Texas Finance Code provisions. This content does not constitute legal advice. Consult qualified legal counsel before structuring or entering into an owner financing transaction.
How Owner Financing Works in Texas
In a typical Texas owner financing transaction, the seller conveys the property to the buyer and the buyer signs a promissory note and deed of trust (or mortgage) in favor of the seller. The deed of trust is recorded, giving the seller a lien on the property until the note is paid. The title company facilitates the search, commitment, document preparation, closing, and recording. For more on the structure, read about what a seller carryback is.
Texas Homestead Considerations
Texas has strong homestead protections under Article XVI, Section 50 of the Texas Constitution. If the property being financed is the buyer's homestead, special rules apply regarding the maximum loan amount, allowable fees, and the types of liens that can be placed on the property. A homestead lien for purchase money is generally permitted, but compliance with constitutional requirements is essential. Consult a Texas real estate attorney for homestead-related owner financing.
Due-on-Sale Considerations
If the seller has an existing mortgage on the property, owner financing may trigger the due-on-sale clause in the seller's loan. While many sellers offer owner financing subject to their existing loan, the lender may accelerate the loan if the transfer violates the due-on-sale clause. Read more about the due-on-sale clause in creative finance transactions.
Regulatory Compliance
Seller financing transactions may be subject to federal lending regulations including the Truth in Lending Act, Regulation Z, the SAFE Act, and applicable provisions of the Dodd-Frank Act depending on the number of transactions and other factors. Sellers who offer financing should consult with an attorney familiar with these requirements. 1st Option Title works with attorneys and closing teams to facilitate compliant owner financing closings.
Property Research Before Financing
Before structuring an owner financing transaction, both buyer and seller should research the property. 1st Option Title offers free Property DNA Reports that provide comprehensive title research information. A Property DNA Report is not title insurance or a legal opinion. It is informational research to help you make informed decisions.
FAQs
Is owner financing legal in Texas?
Yes, owner financing is legal in Texas, but it must comply with applicable laws and regulations. The Texas Constitution permits purchase money liens on homesteads under specific conditions.
Does the title company handle owner financing closings?
Yes. 1st Option Title handles owner financing closings and works with both buyers, sellers, and their attorneys to facilitate compliant closings. Brandi Lemons, our Director of Operations, has extensive experience with owner-financed transactions.