FAQ Contract For Deed

faq's contract for deed

FAQ's For Contract For Deed:

Q: What types of title can I take ownership in as a Contract For Deed?

A: You can take sole ownership OR Business. Business ownership will have slightly different structures. 

Q: What does the application process consist of?

A: Investor will confirm income, assests & debts. Bank funds, 401k or retirement assets, proceeds from the sale of another property, proceeds from sale of other assets, and even gift funds (partially). Reasonable monthly debts compared to income (known as debt-to-income ratio) is needed to help ensure monthly contract for deed payments will not be uncomfortable for a homebuyers budget. Unlike the mortgage world, the investor for the contract for deed program can consider upcoming future income, part-time or seasonal income, non-purchasing spouse income, fixed income and asset-depletion perspectives. The investor also has creative ways to work with self-employed buyers who often write-off a lot of income for taxes purposes.

Lastly, ALL pages of lender pulled credit report (with score) is required OR after application and other documents have been approved, the investor will send a link to MySmartMove for you to pull your own report with score, background, etc. (applcation fee is around $40)

Personal Income: W2's or 1099. Last 4 paystubs. Rent roll. (if you have rental properties) Other income if applicable ~ Social Security, pension, separate maintenance, etc. Assets/Down payment/Reserves: Last 2 statements from bank, retirement and brokerage/‘Net sheet’ from sale of home/If gift, need source & amount.

Business Income: Need Articles of Organization and EIN of MN, LLC. (sole owner) Income: IRS returns ~ business and personal **If business income not on tax return, ALL business bank statement/Year to date P&L/Rent roll (if own rentals) Assets/Down payment/Reserves: Document source of down payment for last 2 months

Q: How long does this process take?

A: Just like a traditional deal, the tranasction can be completed in as little as 21 days. Usually on average the process is 30 days. The first closing will be when the investor buys home selected. The second closing will be the same day back to you from the investor via Contract For Deed. 

Q: What is the premium when doing a Contract For Deed?

A: The buy back premium will vary based on the down payment. The premium annually will be 1%-3%. The higher the down payment, the smaller the annual rate. So, every year the option to buy home back appreciates, but is capped. All numbers will be pre-determiend & confirmed when it's time to make an offer. 

Q: What is my interest rate?

A: Interest rates vary, pending market conditions. Rates on average will be 1%-2% higher than the current rate. Rate will vary on the low or higher end based on the down payment. 

Q: What is the timeline to pay back the CD?

A: The goal is to be able to obtain a mortgage and buy out of the CD within 5 years. If CD is satisfied prior to the 5 year goal, payoff discounts will be earned and applied to the remaing balance of the CD. Orginal loan for individuals is set to fully amortize in 10 years. (5 years @ 30 year amortize amount, next 5 years @ remaining 5 year amortize amount.) 5 year balloon payment for buyers that take home in Business Title. 

Q: When is my down payment (minimum of $30,000) of 10%-20% due?

A: Once the home of choice has been confirmred that it is under contract from the investor, instructions will be sent so that the down payment can be transfered to the title company. Funds are due within 2 business days of confirmation of final acceptance. 

Q: What type of ownership will I have once the Contract For Deed has been completed?

A: When you first take title of home, you will be provided a Contract For Deed title. Once you refinance/obtain a mortgage and buy back from the investor you will be provided a Warranty Deed, full ownership in title. 

Q: How much are closing costs?

A: At time of the offer, the investor will ask sellers for 3% in seller paid closing costs. This will cover TWO transactions and THREE sets of costs:

  • 1st Transaction: Acquisition of the property from the current owner (bank, title, appraisal, etc)

  • 2nd Transaction: Sale of the property to the contract for deed buyer (title and recording costs)

  • 3rd Transaction: Upon payoff, there are liquidation costs (deed tax and recording costs)

These costs are either paid by the first seller (transaction 1) or paid by the client/buyer at closing. (transaction 3)

Q: Does the home have an inspection & who pays for it?

A: This transaction is very similar to a traditional purchase. When a home is selected you will decide if you wish to inspect the home. This is highly encouraged and recommened, this cost is paid by client that selects home of choice. Inspections vary by company, usually starting @ $400.

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