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What is a Contract for Deed?
A contract for deed by definition is ‘seller financing’. Essentially buying a home WITHOUT a mortgage or third party lender. In this installment sale, the buyer agrees to make regular payments to the seller over a specified period of time, in which part go to interest and part goes to bringing down the contract loan balance. (Similar to a bank mortgage) The buyer is responsible for all ordinary homeownership duties such as obtaining property insurance, paying taxes twice a year, utilities and maintenance.
Why is it called "Contract for Deed?"
Contract for deed is exactly what it sounds like. An agreement between the buyer and seller over ownership of the property. Once the buyer successfully performs on the contract (which means making all the monthly payments and paying the seller off at the end of the contract as agreed upon) the buyer is granted full and sole ownership of the property in the form of a "Warranty Deed" (traditional title of a property).
Why might
someone prefer a Contract for Deed?
Contract for deeds are preferable for buyers who may not qualify for a mortgage due to: credit, financial limitations, lower tax returns, ITIN number, prefer a faster process, etc. It provides an opportunity for those to purchase property while making payments that go directly toward their property (opposed to renting, where you are throwing money away!)
What are the risks of a Contract for Deed?
A contract for deed, like a bank mortgage, is a promise to pay the loan back at an agreed-upon date. It is important to understand the risks of defaulting on such note may result in a foreclosure process. It is recommended to be represented by a trusted realtor or attorney when buying any property. Hive is happy to pay a realtor's commission to whoever is legally representing you in a sale.
What are the qualifications to get a Contract for Deed?
Qualifications for a contract for deed may include:
- A minimum of 10% downpayment of the purchase price.
- Proving your income to ensure monthly payments are comfortable. (We understand creatively when considering the income of a buyer)
- Providing a plan of payoff within the contract period. (Typically the plan is to refinance the property after the contract period but some cases might be selling the house to cash out, or making larger periodic payments.)
