A Contract for Deed is private financing between a Home Buyer and a Home Seller. Currently we are receiving more inquiries from potential buyers about the availability of CD financing. Some home sellers in Savage and Prior Lake are offering Contract for Deed Terms. There are also several properties for sale on Contract for Deed in Lakeville, Farmington and Apple Valley.
The search I did today yielded 35 properties for sale South of the River offering Contract for Deed Terms, this included townhomes and condos.
Contract for Deed financing was popular back in the early 1980’s when interest rates were so high, Sellers who were able to hold a contract for the buyer accepted a lower interest rate than the banks were offering. By contrast, today’s interest rates are the best ever, and Sellers who accept a contract for deed from a buyer are asking for a higher interest rate than banks are charging.
The main reason Buyers wish to buy a home on a contract for deed in today’s marketplace is because they’re not able to qualify for a mortgage. They may have difficulties qualifying because of a previous short sale or foreclosure, causing a temporary credit setback. It’s also possible a buyer does not qualify because they are self employed or work on a commission basis, there are fewer mortgages available for buyers with non-standard or complex income sources.
There are a few things to keep in mind if you are entering into a Contract for Deed home sale in Lakeville, Eagan or Burnsville, or any of the South of the River Suburbs.
The Contract for Deed agreement should address the following items:
- Proof the underlying mortgage is being paid on time and the remedy if the seller fails to make payments.
- The dollar limit of work or labor which the buyer can perform during the Contract for Deed term
- Payment and proof of payment for taxes and homeowners insurance premiums
- The potential Sale of the Contract for Deed and Refinance options for the Seller ( note can be sold to a third party but the terms of the contract should not be endangered)
- The Assumability of the Contract for Deed (allows the buyer to sell the property during the CD term)
- Plus the terms of default and what happens if the terms of the Contract for Deed are not fulfilled by either party
Sellers who have a mortgage on their home may not be able to accept a Contract for Deed on the home. If you are a Seller and would like to offer Contract for Deed terms in the sale of your home, you need to check with your mortgage company to see if it is prohibited in the mortgage document. Accepting a Contract for Deed on your home can trigger the ‘Due on Sale’ clause in your mortgage. Seeking Legal advise is the best way to determine your eligibility to offer a CD.
Expectations of Downpayment on a Contract for Deed are usually 10-20% of the purchase price of the home. There may be Sellers offering to accept Contract for Deed Financing with a lesser downpayment, but Buyers should expect to have a substantial downpayment requirement. There are less closing costs in a Contract for Deed sale, notably there is no loan origination fee and many other savings.
The University of Minnesota Extension services offers more detailed comparison of Contract for Deed versus Mortgage Financing. There are opportunities to purchase Contracts for Deed as an investor, the contract is purchased at a discount from the Seller of the home and the investor collects the face value of the CD over the term specified. If you have interest in doing this type of investment, give me a call at 612-889-6496 for more details.
If you would like more information about offering your home for sale with Contract for Deed financing, or if you would like a list of properties available for purchase on CD terms, just let me know and we will email it to you promptly.