Contracts for deed

home_smBack when interest rates were sky high “contracts for deed” were popular then when the rates went way down, and lending standards were low buying a home on a contract for deed was not as attractive as an option. Now contracts for deed are on the rise again because lending standards are tighter, and some folks can not get home loans right now because of lower credit scores caused by short sales and foreclosures.

Contract for deed is a method of seller financing.  A home buyer makes an offer with a down payment and then the contract outlines how many payments the buyer will make before paying off the loan. There is generally a balloon payment.

The state of Minnesota has a series of new forms and discourses designed to educate buyers and sellers on the possible pitfalls. For example it is a good idea to have the home appraised just like it would be for a bank loan. There are all sorts of details that have to be worked out.  During the contract for deed period the person selling the home maintains ownership but the buyer also has rights to the home. Both parties have to agree on who will be responsible for paying property taxes and for repairs and homeowners insurance.

Persons entering into a contract for deed are strongly encouraged to work with a professional.  Personally I strongly recommend an attorney or a Realtor with some experience but my first choice is a real estate attorney.

Contracts for deed can be great opportunities for both buyer and seller, or they can be a total nightmare. Sellers who need cash to buy another home usually can not handle a contract for deed.

Here is a link to a wonderful resource put together by some of my favorite non-profits like the Minnesota Home Ownership Center and the Minnesota Realtors® Association to name a few. Read Contract for Deed and find answers to most of your questions.

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