Contract For Deed. The next big thing?

Can't qualify for a mortgage = can't buy a home? Maybe or maybe not.

Consider how the changing real estate market place has been trending back to 20 years ago in many of the "new ideas". I think that Contract for deeds will become another driving force in home sales for the next few years or more.

In order for a contract for deed to be an option, typically the seller has to own the home free and clear. If there is a mortgage that is currently on the home the buyer and seller must be aware if there is a "due on sale" clause in that current mortgage. Because a contract for deed is considered a sale, that can trigger the due on sale clause. In this case the bank will demand full payment of the mortgage at the time of sale. In a situation like that a contract for deed would not work. This should not be confused with an assumable loan.

The possibility of the contract for deed becoming yet another way to buy and sell real estate has a lot to do with the current market as well as all of the baby boomers that are now heading into retirement.

On the sellers side, they would get an amount as a down payment which would free up some cash and in essence they the seller becomes the bank. They are making interest on the payments the buyers make and still hold a stake in the home until the contract for deed is paid off. You can even agree that the contract for deed will last for 5 years and at that time, the buyer will re-finance and pay off the balance to the seller. So there is a lot of freedom for both sides.

On the buyers side, there is no qualification for a mortgage, no origination fee and the interest rate is negotiable between the sellers and the buyers. It will help buyers who have good steady jobs, a good down payment but also might have a few dings on their credit. They can get into a home sometimes years before they could with a traditional mortgage.

So before you give up trying to buy a home because of credit issues or list a home for sale without having all the options, speak to a professional agent who can help you. As always make sure to consult an attorney to answer all of your legal questions as well as your tax professional regarding the impact of any financial decision you make.

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