What is a Contract For Deed
A contract for deed, which is also sometimes referred to as a land contract or owner financing, allows the owner of property to finance the buyer during a real estate purchase transaction instead of a bank. Since the borrower is dealing with an individual lending them money the clear advantage to the buyer is a private owner's flexibility in lending criteria versus bank lending that can be very restrictive on credit. In a contract for deed situation for example credit does not matter; it is strictly based off a borrowers income and cash down payment.
The loan amount between the borrower and owner will be based off the purchase price minus the down payment. Much like bank financing there is still a interest rate that will be amortized over 30 years as an example where monthly principal and interest payments are being made on the loan, so from the borrower's perspective contract for deed financing acts very similar to what they are used to with a bank loan.
In a contract for deed purchase the borrower takes equitable title to the property. What this means is a borrower reaps the benefits of any increase in the home's value; whether that be through rising home prices or a kitchen remodel that gets completed.
In return, the seller will retain legal title to the property until the loan is satisfied; usually by means of an eventual refinance into a bank loan. Once the borrower has fully satisfied the loan with owner of property they will be given a warranty deed to property that gives them full legal ownership, and thus that is why this type of real estate transaction is called a contract for deed.
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Listing information last updated on September 26th, 2017 at 10:24am CDT.