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Contract for Deed (Owner Financing - Process & FAQs)
Contract Sales are a relatively simple process.
• Fast: 10-20 day closing.
• Cost Effective: Relatively cheap for both parties.
• Simple: Requires about 10% of the usual paperwork.
RealStar Agents are experts in Contract for Deed sales. Contact us with any questions. We would be happy to help.
I think I am qualified for this, send me more info
|For all intent and purposes Contract for Deed sale is similar to a ‘regular’ sale. The only real difference being no Finance contingency is needed. A standard Realtor sales contract is used with the Miscellaneous Provisions section completed (Contract for Deed) and an addendum is added. The contract is signed, earnest money is collected and the process moves on to the Attorney Review and Home Inspection phases just like a standard sale process.
There are essentially two closings. The first occurs relatively quickly in as little as 10 days (subject to the Attorney’s time). It is an abbreviated closing as no State, County or City transfer fees are collected at this time. Tax and Homeowner Association prorations are also deferred. When completed, the seller walks out of the closing with money and the buyer walks out with keys. The second closing occurs usually 12-36 months later when the property is refinanced by the buyer. Only then are the transfer fees and prorations paid.
During the contract for deed period he buyer pays a monthly payment to the seller. The seller in turn pays their normal payment(s) to the bank (minus any overage) just as they would in a rental situation.
Why don’t we see this more often? This is still popular in smaller communities where sellers often know the buyers. A few years ago anyone could get a loan. The vast majority of Realtors and Attorneys never needed to know how this works. Today, stricter lending guidelines make it difficult to qualify for a loan. Contract for Deed is the best way to buy a home when you just miss qualifying. RealStar and our Attorneys are experts at it.
Why can't I buy with no money down? What you see in those infommercials is false. You simply can't buy without some type of down payment. Example: While you might agree to sell your car to a family member for nothing down, would you do the same for a stranger? Problably not. Don't expect someone to sell their home that way either. It doesn't happen.
What does it cost a buyer? sellers are not going to give up control of their property for just one month’s security deposit (like a rental). You need to plan on roughly 3-5% out of pocket. Keep in mind, the actual down payment usually equates to just a little over the 1st months rent and a doubled up security deposit usually required by Landlords. The nice thing is the seller won't care where the money comes from. You don't need to 'track it'. You can borrow it or even take back aluminum cans to raise the money if needed.
What does it cost a seller? In any sale situation (unlike a rental) the seller has some expenses like Title Insurance, Attorney and some Realtor & Closing fees, etc. The buyer's down payment will cover these expenses and leave a little money left over for the seller.
Who is this for? As someone who has good income but a little dinged up credit you have two options: 1) Rent and throw ALL of your money away then, do it all over again in another 12 months or, 2) Raise a little extra cash and purchase on a Contract Sale where you can get several thousands of dollars in tax breaks plus equity. While your friends are throwing money away on rent you are building equity! Most importantly, with the tax write-offs your actual monthly costs could be several hundred dollars less a month than if you just paid rent!
It’s perfect for those people who previously owned a home and had good credit but fell on hard times and went through a short sale or bankruptcy.
When won't this work? You simply cannot buy Contract for Deed if your FICO credit score is not already near or above 600. It just would not make sense for the seller to take a chance especially if you have had bad credit for several years. You must also be able to get cash of at least 3-5% of the value of a property. Those who receive rent vouchers (Sect 8, etc) will also fail to qualify for this type of purchase. Finally, if you cannot seem to pay your current rent on time, this isn't for you.
OK, this is perfect for me. How can I find out more? Contact RealStar Realty. Our agents are experts at Contract for Deed sales. We will answer any questions that you may have.
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