Which of the following is TRUE about seller financing in Texas?
Audio Lesson
Duration: 2:29
Question & Answer
Review the question and all answer choices
Sellers cannot finance property sales
CORRECT_ANSWER
Seller financing requires TREC approval
TREC approval is not required for seller financing transactions. While real estate agents must be licensed, the financing arrangement itself doesn't require special regulatory approval from the Texas Real Estate Commission.
Seller financing with a wrap-around mortgage is allowed
Seller financing is limited to commercial property
Seller financing is not limited to commercial property in Texas. It's commonly used for residential properties as well, particularly when traditional financing options are unavailable or undesirable for either party.
Why is this correct?
Texas law explicitly allows seller financing with wrap-around mortgages, where the seller keeps their existing mortgage in place while creating a new mortgage that encompasses it. This is a common financing method when buyers may not qualify for traditional loans or when sellers want to offer more flexible terms.
Deep Analysis
AI-powered in-depth explanation of this concept
Seller financing is a crucial alternative financing method in real estate that expands marketability and flexibility for buyers who may not qualify for traditional mortgages. This question tests knowledge of Texas-specific regulations regarding seller financing. The correct answer (C) is true because Texas law permits seller financing, including wrap-around mortgages, which allow a seller to maintain their existing loan while creating a new mortgage that wraps around it. Option A is incorrect as sellers can finance property sales. Option B is wrong because TREC approval is not required for seller financing. Option D is incorrect as seller financing applies to both residential and commercial properties. Understanding these financing options is essential for Texas agents as they help clients navigate various transaction scenarios and expand their buyer pool.
Knowledge Background
Essential context and foundational knowledge
Seller financing, also known as owner financing, is a real estate agreement where the seller provides financing to the buyer instead of the buyer obtaining a mortgage from a traditional lender. In Texas, this practice is permitted and regulated under state law. Wrap-around mortgages are a specific type of seller financing where the seller maintains their existing mortgage and creates a new mortgage that 'wraps around' it. The buyer makes payments to the seller, who then continues making payments on the original loan. This arrangement requires careful structuring to ensure compliance with Texas's due-on-sale clause regulations.
Think of a wrap-around mortgage like a layered cake - the bottom layer is the seller's original mortgage, and the new buyer's mortgage wraps around it, encompassing both layers.
Visualize the layer cake when you see wrap-around mortgage questions. Remember that the seller's original loan stays in place while the new buyer's payment wraps around it.
When questions ask about seller financing in Texas, remember that wrap-around mortgages are specifically allowed. Look for options that mention this arrangement as likely correct.
Real World Application
How this concept applies in actual real estate practice
A Texas homeowner has a $150,000 mortgage at 4% on their home valued at $250,000. They want to sell but have a qualified buyer who can only make a small down payment. The seller offers to finance $200,000 with a 6% interest rate, creating a wrap-around mortgage. The buyer makes payments to the seller, who continues paying the original lender. This arrangement allows the buyer to purchase with less traditional qualification requirements while the seller earns interest on the financed portion, creating a win-win scenario that expands the market for both parties.
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