What is a bond for deed?
"A bond for deed is a contract to sell real property, in which the purchase price is paid in installments and in which the Seller, after the payment of a stipulated sum, agrees to deliver title to the buyer."
Advantages for Buyers
- The buyer is not a tenant and has all advantages of home ownership.
- The buyer can build equity by amortizing the BFD and market appreciation over time.
- They buyer gets the tax deduction for taxes and interest paid.
- There is no credit, income or other underwriting requirements.
- The state BFD statues protect your interest in the property.
Disadvantages for Buyers
- If you fail to pay you will have to vacate and forfeit everything you have paid - the same as if you bought under a mortgage.
- A bond for deed purchaser does not qualify for the homestead exemption in most parishes.
Escrow Services and Why You MUST Insist on One or Walk Away
If there is a mortgage on the property, it's the law! If there is not a mortgage on the property, the seller is required to keep a full accounting of every payment as to its P&I allocation, quote accurate payoffs to lenders to which the buyer applies for refinancing, and report 1098 interest to the IRS. The purpose of a bond for deed is to provide a bridge to regular financing. The escrow service will keep track of your payments, insurance and interest. Making on time payments will help your credit when it becomes time to refinance. And more than likely you will have to refinance to a regular mortgage. So pay on time and work on your credit score. The motives of a seller that demands direct payment is suspect. Don't do it!
Special thanks to Escrow Services Inc for providing information.