Reasons for a Contract for Deed

Contract for Deed is a form of owner financing of real estate. An owner and a buyer enter into a contract in which the owner agrees to give the buyer a deed after the buyer pays the owner a certain amount of money. Usually the contract requires the buyer to make payments over time with interest payable on the unpaid balance. After the buyer pays all of the payments called for under the contract, the owner gives the buyer a deed to the property.

During the term of the contract for deed, the buyer is entitled to possession of the real estate and is required to keep the property insured and pay the real estate taxes.

Home buyers and home sellers both benefit from buying and selling on a contract for deed

Have A Home To Sell?

The primary advantage of a contract for deed to a seller is that the seller may gain interest income on the real estate. In addition, in times when interest rates are high for conventional financing, a seller may be able to offer credit terms to the buyer that a conventional lender may be unwilling to offer thereby increasing the market value or, at least, the potential sale price of a piece of property. The primary disadvantage to a seller is the risk that the buyer may default and that the seller may be forced to repossess the property after it has depreciated in value. The best protection to a seller is the down payment. The higher the down payment, the less likely a buyer will allow the seller to cancel the contract for deed and the less likely the property will depreciate below the balance owed to the seller.

Home Buyers

The primary advantage of a contract for deed for a buyer is that closing costs are usually low, damaged credit is become more of the norm in this economy, so the seller is the decision maker as to how much down payment is required and the terms of the loan.  When compared to conventional bank financing, a person who may have had credit issues will be required to have at least 10-15% down plus 5% in closing costs, if you qualify at all.  With a contract for deed, often you can get into the property for about 15% total, depending on the seller

The primary disadvantage to a buyer is that in the event the buyer has later financial problems, the process of foreclosure (or cancellation of a contract for deed) is very short. Usually a buyer has only 60 days to cure a contract for deed default in order to keep the property. For a conventional mortgage, that time is usually at least 6 months. When a contract for deed is canceled, the buyer loses the real estate and all money paid on the property to that point. And must be prepared 3-4 years out to refinance the loan

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With the soft economy and the foreclosures increasing every day. Selling your property on a Contract For Deed can help relieve yourself about declining home values.  There are many people that are in the position to sell but do not want to take all of their proceeds and pay taxes, whereas the taxes could be spread over time. 

Example: Seller sells their property for $200,000.  Depending persons personal tax obligations – will determine the amount what the home seller actually is able to keep.  Just to invest their proceeds at a bank earning 2%

With a contract for deed, the seller can sell at market value or slightly higher,  earn interest of 6-7% on the entire balance until the new homeowner refinances their final balloon payment.

A seller needs to be in the position to sell - which means the property cannot have any liens against it or a Due on Sale clause with a current lender.

Although Contract for Deeds can be used for a variety of reasons, their most common use is as a form of short-term seller financing. Usually, but not always, the date on which the full amount of the purchase price is due will be years sooner than when the purchase price would be paid in full according to the amortization schedule. This results in the final payment being a large balloon payment. Since the amount of the final payment is so large, the buyer may obtain a conventional mortgage loan from a bank to make the final payment. Land contracts are sometimes used by buyers who do not qualify for conventional mortgage loans offered by a traditional lending institution, for reasons of unestablished or poor credit or an insufficient down payment.  Contracts for Deeds are also used when the seller is anxious to sell and the buyer is not given enough time to arrange for conventional financing.

There can be other advantages of using a Contract For Deed.  When a third party lender, such as a financial institution, provides a loan, this third party has its own interests to protect against the other two parties involved, the seller and buyer.

Establishing the correct title and value of the property to be used as collateral is important to the lender. Thus, the lender commonly requires title service including title search and title insurance by an independent title company, appraisal and termite inspection of the property to ensure it has sufficient value, a land survey to ensure there are no encroachments, and use of Title company to ensure the closing is done correctly.

These third party lender requirements add to closing costs which the lender requires the seller and/or buyer to pay. If the seller is also the lender, these costs are usually not required by the seller and may result in closing cost savings and fewer complications.

It may also be the seller's position that if the buyer requires any of these services, he could pay for the costs and make arrangements him(her)self.

For properties where only relatively undeveloped land is involved and if the seller is willing to finance, the price of the empty land may be so low that the conventional closing costs are not worthwhile and can be an impediment to a quick, simple sale.

Easy financing and a simple sale transaction may be a good selling point for a seller to offer a buyer.

The land contract may also allow the buyer to assign his(her) equitable title/interest in the property to yet another buyer even before the loan is paid in full, subject to conditions in the land contract, effectively reselling his equity in the property to the new buyer.

We can help you purchase real estate on a contract for deed-credit isn’t an issue. If you have money to put down we will help you find a property that a seller will carry back a mortgage-contract for deed-cd-land contract-owner financing-

Real Estate contract for deed can be a great way to own a house without the hassles of going thru all the hassles with a bank.

Buying Real estate contract for deed is very simple and Pleasant- if you have a knowledgeable Real Estate Broker-

Closing costs are alot cheaper than a mortgage-closings can be quick if the house is vacant-less money down-no appraisals-

Owner financing is the best way to go if you have credit issues- or a bankrupcy in the last 2 years- a foreclosure in the last 3 years.

Owning a home with owner financing is alot better than renting or renting to own. You get to write off the interest and do things to the house to make it your home. Verses paying someone else’s mortgage and hoping to buy it at a future date.

You do have to refinance the contract when buying a property with owner financing but you own the home as stated above you can show payments being made monthly plus much more.

 Buying or Selling – contact us at www.ContractForDeedMN.com