Contract For Deed: Advantages And Disadvantages For Buyers
Just what are the advantages and disadvantages of a contract for deed to the buyer in a real estate transaction?
For many buyers who are considering contract for deed the only other option is to rent. Therefore, it is prudent to consider all the benefits of homeownership as well.
Keep reading below to find out how this can be an excellent option to achieve homeownership when bank financing is not possible.
Or check out our “What Is Contract For Deed?” page that goes into more detail on typical terms and how it works.
Contract For Deed Advantages To Minnesota Home Buyers
The advantages of contract for deed far outweigh the disadvantages from the perspective of the buyer.
No Credit, No Problem
Your credit score will have no bearing on your ability to make a home purchase via contract for deed since we do not conduct a credit check as part of our financing program. This is the number one reason buyers in Minnesota pursue contract for deed. Whether you are looking to rebuild your credit after a bankruptcy, move on after a divorce, or are a first-time buyer with little credit history, contract for deed is the best way to buy a home without the help of the bank. And, unlike rent-to-own, you are able to take ownership of the home rather than continue as a renter for the term of the contract.
Flexibility On Qualifying Income
Besides bad credit, the flexibility on qualifying income for buyers is the second most prevalent reason individuals choose contract for deed.
Did you know that the self-employed are the number one group who utilizes contract for deed financing?
Gig workers, 1099, tips, and essentially anyone else who is not W2 falls into this niche group as traditional banks do not have a loan product tailor made for these workers. This is due to banks qualifying taxable income vs. gross income, which when factoring in tax deductions for the self-employed causes a loan denial.
Contract for deed financing can still be helpful to W2 earners who are brand new out of college, recently switched industries or have wide gaps in employment history.
Tax-Free Home Equity Appreciation
Unlike rent-to-own, contract for deed buyers are able to gain equity when home values rise. This appreciation is tax-free under current laws for capital gains taxes on primary residences, protecting appreciation as high as $500,000 for married couples and $250,000 for individuals. This includes appreciation due to rising home prices as well as added value from home renovations such as a kitchen remodel.
Lock It In
No More Throwing Money Away On Rent
Contract for deed financing, just like a bank mortgage, will have the buyer making monthly principal and interest payments. Along with rising home values the loan amount also decreases over time.
Many landlords raise rent prices every year whereas with contract for deed financing the interest rate is fixed. This means the monthly payment will not change at any time during the loan term.
Living According To Your Beliefs
What Are The Disadvantages Of A Contract For Deed To The Buyer?
The disadvantages are far fewer but, in the interest of transparency, we want to make sure you aware of them. Disadvantages include:
- Less protection for buyers compared to a mortgage: Buyers in a contract for deed generally have a shorter timeframe when trying to get caught up on missed payments compared to a mortgage. Due to no credit check being performed in a contract for deed, the seller may not have the full financial picture of a buyer’s debts. Therefore, there is a heightened responsibility on the buyer to make sure they are not getting into too high of a payment. It should also be noted that you can always the sell the home at any time during the contract for deed if getting caught up on payments is not feasible.
- Higher price tag: A buyer can expect to pay a higher sales price for a house using contract for deed financing than through a mortgage.
There are two main reasons for this:
- Supply and demand: In Minnesota, finding contract for deed homes is extremely rare, which allows the seller to obtain a higher price. The good news is our financing program solves this issue for buyers.
- The seller foregoes a lump sum payment: A seller at closing would normally receive 100% of the proceeds. In a contract for deed the seller forgoes this, and instead receives payments over time since they are also financing the buyer. This is not always and advantage to the seller, so paying a higher sales price entices them into performing a contract for deed.
Experience The CBlock Investments Advantage
With the help of our team at CBlock Investments, we think it’s fair to say that the contract for deed advantages to MN home buyers far outweigh the disadvantages. Our professionals understand all the legal aspects of contract for deed and can help you maximize the advantages while minimizing or avoiding the disadvantages. Call 651-307-7663 or fill out our contact form to get in touch with us.
"When The Banks Turn You Down We're Here to Help"
-Chris Block Owner & CEO
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Why Contract For Deed?
It is the #1 alternative home financing solution since credit is not a qualifying factor for loan approval.
We would love to hear from you! Please fill out the form below completely, and then provide a brief message so that we can expedite the process of handling your inquiry. Talk soon!
No Credit Check
Bad or no credit is OK! This contract for deed financing program is strictly income & cash down payment based.
Fast & Easy Application
Get an immediate response on loan approval without all the hoops a bank makes you jump through.
Get The Home You Want
Don't let that perfect house slip by because the bank turned you down for financing. All of Minnesota qualifies. Realtors always welcomed.
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