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Your best option for discovering all the listings available for a rent to own Dallas home will most likely be the internet.  Since the mid-1990’s, the internet has become an increasingly great source of information for numerous topics, especially when it has anything to do with the Real Estate industry.  Before you ever consider the option of enlisting the services of a real estate agent or broker, you should at least spend a few hours searching for a home of this nature online.  It’s a lot more convenient than conducting a wild goose chase out on the streets of the local vicinity.

Talk to a real estate agent or broker next

Once you have conducted a thorough search and narrowed it down to maybe a dozen rent to own Dallas homes, consider discussing the issue with a real estate agent or broker.  Searching the online MLS website oftentimes reveals options that your search may not have afforded you with.  This is where the services provided by an agent or broker will benefit you the most.  Besides that, they have knowledge of the real estate industry that most home buyers don’t possess.

The concept of rent to own homes

Rent to own contracts are more commonly referred to as lease to own or lease to purchase agreements.  Basically, it means that you agree to lease a home for a specified period of time and a portion of the proceeds from that contract go towards the eventual purchase of the home.  For both the home buyer and seller, there are numerous benefits on either side of the equation.  However, the purchaser’s benefits are what we are focusing on where rent to own Dallas homes are concerned.  Consider the following:

• You can purchase this type of home even if your credit history is not that good – this literally allows the purchaser of the home the ability to acquire a home loan and improve their credit history in the long run.

• The price of the home gets “locked in” – regardless of whether or not this is a rent to own Dallas home, this is a major benefit to the home buyer in that once the home’s purchase price is agreed upon between the buyer and the seller, no changes can be made.

• You have the ability to “test drive” the home before actually committing to the purchase contract – if for any reason, the buyer is not satisfied with the rent to own Dallas home after the lease purchase agreement has been completed, they can walk away from it without any recriminations.

• Mortgage closing costs can be minimal or non-existent – typically, rent to own Dallas home contracts include a lease and a premium.  Premiums are normally added at the time of purchase and may be used towards the purchase of the home from a credit standpoint.  It is not unusual for this premium to pay off the closing costs as well as the down payment on the home.

Usually, a prepayment penalty will be reduced or disappear completely as time elapses.  Seldom will you see a prepayment penalty that exceeds five years.  Most lenders will allow a partial prepayment of the loan up to 20% of the balance in one year without any penalty being assessed.

A prepayment penalty can be “hard” or “soft.” “Hard” means that the penalty will be assessed whether you refinance or sell the home and “soft” means that the prepayment is forgiven in the event the buyer is selling the home, but charged if the buyer decides to refinance.

For example, on a $100,000 loan with 6.5% interest, a prepayment penalty based on 6 months interest would be $3,250.  It’s not cheap.  You may be able to get a tax deduction since it is considered prepaid mortgage interest, however, if you have to pay it during a refinance it reduces your home equity.

Lenders write prepayment penalties into mortgage loans to ensure that they get a certain yield off of the loan.  Before the subprime implosion almost all of the subprime loans had prepayment penalties because the loans were so risky.

Prepayment penalties are seldom waived by the lender.  The way most lenders view it is that you are terminating a relationship with them to begin a new relationship with another lender.  With a lot of coaxing you may be able to induce the lender to let you out of the prepayment but it’s a long shot.

Every lender should disclose whether there is a prepayment penalty on the loan.  Many borrowers find themselves wanting to refinance out of their high interest rate loan but soon discover there stuck because the fee to get out is so steep.  It is often a surprise to most homeowners that there is a prepayment penalty on their loan.  Their response is usually something along the lines, “My loan officer never mentioned anything about a prepayment penalty” or “My lender told me there was no prepayment fee.”

It is prudent that anyone getting a loan ask whether there is a prepayment penalty on the loan, and if so, how long it lasts.  Next, you should ask the lender to show you where it specifically says in the contract that there is no prepayment penalty or show me the exact terms of the penalty if you decide to prepay the loan.  As long as the prepayment matches you’re the time frame you plan on keeping the home, rarely is there a problem.

Prepayment penalties are fair IF you understand why it was added to your contract.  If it’s assisting someone with marginal credit (assuming the home owner is now more responsible) become a new home owner, then it’s a fair deal.  If it’s to pad a lenders pocket book then it’s FOUL.

One good thing when there’s no prepayment penalty you have the opportunity to refinance your home anytime you wish as long as the numbers work.  You will need to find out how much does it cost to refinance a mortgage? so that you can make sure it is worth your time and actually lowers your payment.

Where income taxes are concerned, Prepaid Interest is “expensed out” over the course of the financing or loan.  It typically refers to that type of interest incurred by a debtor prior to actual repayment of the original debt.  Where mortgage loans in real estate are concerned, prepaid interest can refer to the amount of interest accruing from the actual settlement date until the start of the initial mortgage period.  For instance, the “points” are a type of fee in the process that is considered to be a form of prepaid interest.

Additionally, it should be noted that any interest paid at the time of closing for the remaining portion of that month is labeled as prepaid interest as well.  Interest is typically paid at the start of the month so technically, should your purchase occur in the middle of any month, you have paid no interest to date for that particular month.  Therefore, it becomes necessary to pay for the remainder of the month at closing.

An Overview of Prepaid Interest

The most common misconception about prepaid interest is that it functions similar to a lease or rent payment on an apartment, condo, or home.  In other words, it is paid in advance prior to living in the dwelling during the ensuing month.  This is completely false due to the fact that you are always paying in arrears where prepaid interest is concerned.  Interest starts accruing the minute a new month begins.  Additionally, the accrual process continues throughout every month, hence the payment being due at the start of the ensuing month.

The reasoning behind the way this functions is based in the fact that until you have technically borrowed the money for another month this interest has not technically been earned.  The fact that windfalls of cash is a remote possibility during the loan period, and that this windfall would enable you to pay of any and all debts, is why the process was designed to function in this manner.  Refinancing that loan is also a possibility that is considered.

In that particular case, the only interest that the bank or lender is entitled to relates to the amount of interest that has accrued up to the time that the loan was refinanced.  However, when you do refinance or employ a purchase money loan initially, you will most likely be obligated to and responsible for the interest accrued by the new loan resulting at the end of that month.  The reasoning behind this is one of an administrative nature in that it provides the bank or lender the amount of time they need to set up all the accounting necessary to manage that particular account.

They now have a 30-day cushion for between the initializing of the loan and the time that the very first payment on that loan is received.  Basically, you will make an upfront or down payment to the prior lender for that part of the month pertaining to the original loan that you had with them.

A Settlement Statement is a summarization vehicle most commonly associated with the Real Estate industry in that it lists all applicable fees and charges encountered by both the buyer and seller of the property during the actual settlement process.  HUD, or the US Department of Housing and Urban Development, typically has jurisdiction over this particular document.

Charges and Fees Itemized on a Settlement Statement

Typically, charges and fees that are summarized on a Settlement Statement are classified into two categories.  These are the charges and fees that apply to the Loan and the ones that apply to the Title.

Charges and fees which apply to the loan include:

• Appraisal fees
• Credit report charges
• Document preparation fees
• Final inspection charges
• Loan origination fees

The charges and fees which apply to the title are:

• Attorney fees
• Charges for any facsimile transmissions
• Notary fees
• Title document preparation fees
• Title insurance fees

Understanding a Settlement Statement

The Settlement Statement is actually short for HUD-1 Settlement Statement.  For most individuals reading and understanding this type of real estate oriented document can become a bit challenging and frustrating.  The document is usually provided by the broker or lender of the mortgage as is required by RESPA, or the Real Estate Settlement Procedures Act of 1974.  Just like a federal or state income tax return, this is a government document containing critical information for both the buyer and seller of the property.

Reading the document thoroughly and understanding it as well is therefore critical.  Digesting the Settlement Statement section by section is recommended as this will make it easier to comprehend the contents of it.  We have provided a brief summary of the most effective way to read and understand this document and listed them here.

Section A through I – most of the information contained in the first 9 sections of a Settlement Statement are extremely general in nature.  They contain the following information regarding:

• Address and location information
• Date of the real estate transaction
• Personal information (e.g. name, address, etc.)
• The type of loan employed to purchase the property

Section J – details and information that is mostly pertinent to the borrower will be found in this section.  Any costs or credits as well as the net amount owing are listed and outlined carefully.

Section K – details and information that is mostly pertinent to the seller of the property will be found in this section of the Settlement Statement.  Realistically, it is a summary of the property seller’s transaction.  It includes any adjustments that may have been made as well as the total amount actually due the seller of the property.

Section L – details and information pertinent to the seller and regarding financing the sale and the processing of it.

Hopefully, the above information will provide you with a useful tool for understanding the Settlement Statement whenever you are involved in the home buying or selling process.

In the US, a Deed of Trust or more commonly, a Trust Deed, serves as evidence of a debt.  It also serves as the transfer record for the title on a piece of property to a third party which holds the deed as security.  In most states it is the most common form of financing a home or piece of property.  Additionally, where public records are concerned, it is the document that serves as the recording of the title.

Typically, the following are identified by a Deed of Trust:

• Borrower and lender
• Legal property description
• Loan amount
• Loan inception date
• Loan maturity date

Additionally, there are certain aspects that a Deed of Trust will specify, inclusive of:

• Acceleration and/or Alienation Clauses (if specified)
• Adjustable or fixed rates of interest
• Applicable late fees
• Penalties for pre-payment (if specified)
• Provisions for legal procedures and the requirements

Function of a Trust Deed

Despite the fact that most states employ mortgages, some states (e.g. California) prefer to use a Deed of Trust.  This establishes a third party, commonly referred to as a trustee, who holds the title on the property until the loan has been completely repaid.  The three parties concerned are the borrower/purchaser, the lender, and the trustee.  The title company is oftentimes assigned the responsibility of being the trustee.

Their function is to provide security for the lender by holding the Deed of Trust.  Once the loan on the property has been paid in full the Deed of Trust is released by the title company as a Deed of Release.  The title is then transferred into the name of the purchaser and is stamped “Paid in Full.”  It should be noted that the title company is referred to as a silent entity or vehicle which operates independently of the lender and the purchaser.

Considerations prior to signing a Deed of Trust or Promissory Note

Remember first and foremost that any documents involved in any real estate transaction are always filled out and prepared by a human being, meaning that there is a possibility of errors existing.  Everyone involved in the transaction should read over all documents very thoroughly making to certain to review the following items as they are the most important:

• Correct spelling of all names
• Loan principal balance
• Rate of interest (a rider may be included if the rate is adjustable)
• Amount of monthly payments
• Clauses specifying pre-payment penalties and the amounts involved
• Property address

Despite the involvement of the of the third party/trustee, the purchaser still retains the privileges and the rights to the property.  The most significant difference between mortgage notes and a Deed of Trust is the fact that the trustee is allowed to foreclose directly on the property.  In this circumstance, the court is not allowed in the default proceedings.  Finally, as with the importance of the above, make sure that you receive answers to any and all of your questions.

In simplest terms, a mortgage note is a written promise (i.e. promissory note) to repay a specific amount of money loaned plus all interest, repaid in equal monthly payments over a prescribed length of time, and therefore fulfilling the promise to repay.  The amount of the original debt and the interest rate are typically stated on the mortgage note.  The borrower’s signature on the note indicates that they are personally responsible for repaying the loan.

Although it is extremely rare, there have been cases where the purchaser of the mortgage note took over the remaining payments only.  Additionally, the most common form of purchasing a mortgage note is referred to as a “partial purchase.”  This occurs when the buyer does not offer to purchase the entire note, but instead agrees to buy only a portion of the remaining payments.

Types of Mortgage Notes and Determinants

Typically, the specific “type” of mortgage is determined by the mortgage note itself.  For the most part, the following are the 6 most common mortgage types and what classifies or defines the type of mortgage:

• Adjustable Rate Mortgage (ARM) – floating interest and repayment rates
• Balloon Payment Mortgage – indicated by an amortization schedule that exceeds the maturity date.
• Fixed Rate Mortgage (FRM) – fixed interest and repayment rates
• Graduate Payment Mortgage (GPM) – adjusting payments and a fixed rate of interest
• Interest-Only Loan – only the interest is repaid in the payment schedule, principal is due in full at maturity
• Negative Amortization – a mortgage which allows this contains a payment adjustments frequency which is usually less than the frequency of the interest rate adjustments

Advantages and Disadvantages of Selling a Mortgage Note

Rather than holding onto a mortgage note, many note holders will opt for selling the note.  This is becoming more apparent as the economy becomes more volatile.  There are certain advantages to selling a mortgage note versus holding onto it including:

• It removes the risk of encountering default by the borrower and having to foreclose on them
• It removes the worry associated with whether or not the mortgagor has maintained their home and paid all applicable property taxes
• There is no more monitoring of the tax assessor necessary to see whether or not the borrower is incurring liens against the home
• No longer is there the necessity of keeping detailed payment records or having to report the interest payments to the specified tax authorities
• You typically will receive a lump cash sum very quickly
• You’ll be able to have a cash cushion if economic times get rougher or have the money to re-invest in other lucrative opportunities

Along with the advantages of selling a mortgage note comes these 3 disadvantages:

• When you sell the note, you’re monthly cash flow/income is gone
• If you’ve been spreading out the gain on the loan over the life of the note, you may have to show the total gain remaining where your taxes are concerned
• You’ll have to take a discount on the loan balance due to the “time value” of money

Owner Financing is also called seller financing and refers to a technique that is used to finance a home wherein the buyer borrows the money to purchase the home from the seller rather than procuring the loan from (or possibly in addition to) a bank or lender.  It is a useful tool for buyers who are unable to qualify for a loan for the full purchase price less the buyer’s down payment.

Instead of using a bank or other lender, the buyer provides the owner/seller with a financial instrument serving as evidence of the loan and then makes monthly payments to the seller.  Because of the changing economy and the fact that the credit market has really slowed down over the past couple of years, it has become difficult for more and more people to obtain financing.  This is evidenced by the growing popularity of owner financing as well as becoming a viable alternative to the more traditional types of financing.

Advantages of owner financing for the buyer

There are 5 key advantages of owner financing that benefit the buyer:

• Very little qualifying if any – granted the seller may want a copy of the buyer’s credit report, but their qualifications will be less strict than that of a traditional lender.

• Financing tailored to the buyer’s needs – unlike with banks and other lenders, the buyer and the seller have a variety of financing and payment options (e.g. balloon payment, fixed-rate amortization, interest-only, or less-than-interest)

• Flexibility with down payments – there is usually room for negotiation with the amount of the down payment.

• Closing costs are lower – typically, when a bank or lender is not part of the financing equation, there are no loan closing costs or discount points that have to be paid unlike with conventional financing.

• Faster time of possession – because both the buyer and seller are not subjected to a bank or lender approving and processing the loan on the home, the deal usually closes faster and the buyer gets to take possession of the home faster.

Advantages of owner financing for the seller

There are also certain advantages that benefit the seller as well where owner financing is concerned, including:

The house will usually sell for a higher price – the seller may be able to sell the home at the full listing price or even a bit higher when offering the buyer owner financing.

Breaks on paying taxes – the seller receives a tax break because they only have to report the income earn off the loan for the calendar year.

Monthly cash flow – owner financing generates a guaranteed monthly income for the seller while the loan is being repaid.

Interest rates are usually higher – typically, the interest rate will be higher compared to that of a bank or lender for a traditional home loan.

Shorter listing period – when a seller advertises owner financing available on their home, it typically separates them from the other properties and entices a different set of buyers.

There are many mortgages for bad credit available on the market today.  We just happen to be one who does it with no credit check regardless of your paste credit history.