A Contract for Deed allows a buyer to purchase a home at a negotiated price from a seller with a small down payment. A banking institution will then treat this as a refinance after at least 12 months or more of timely payments made through a third party (checking account) to the seller. This offers the buyer time to build equity in the home, make any necessary home repairs for fixed rate secondary market loans, and time to repair any credit problems prior to bank financing. The big secret is that banks then treat the contract as a refinance with equity built into the home. It is a win win scenario.
Buyer Benefits:
- allows monthly buildup of equity
- allows the buyer time to repair credit for bank financing
Seller Benefits:
- home is sold faster during a slow market
- the home is usually sold at a higher price than a normal transaction
- upfront cash to seller
- the buyer will have greater interest in home maintanance compared to a renter
P.S. A buyer should always have their credit reviewed with a bank prior to entering into a Contract for Deed in order to repair any credit issues prior to obtaining financing upon contract maturity.
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