Answering Common Questions
Below are some frequently asked questions by borrowers on our contract for deed financing program. Not seeing what you are looking for? Get in contact with us!
Will You Finance Commercial Properties or Land?
No. This contract for deed financing program is only for residential real estate.
What if I Don't Have Tax Returns?
We like to ideally see two years worth of tax returns. However, we care more about current and future income during the contract for deed. For self employed a minimum of 1 year is needed, and we can verify your income through bank statements.
We will work with brand new W2 earners who are starting a job or switching careers.
Can I Purchase a Contract for Deed After Chapter 7 Bankruptcy?
Yes. You can purchase a home using contract for deed financing after your discharge date.
Can I Purchase a Contract for Deed While in Chapter 13 Bankruptcy?
Yes. You will most likely need permission from the bankruptcy judge to make a purchase, and unlike banks our contract for deed financing program is not based off your credit. This will make it easier obtaining financing.
Can I Purchase a Contract for Deed While in a Divorce?
If your divorce has not been finalized then the answer is most likely no. In Minnesota your spouse will still have an ownership interest in the property; even if she does not sign any purchase documents (you try to buy it yourself). You should seek legal advice with an attorney to see if they have any creative solutions to get around this.
How Does the Offer Process Work?
Once you identify a home we will begin the process of acquiring the property using your Realtor of choice, or we can provide referrals if necessary.
We always try to negotiate the best deal possible as it is in both our best interests. You will be consulted on all counters/negotiations with the seller of property to make final decisions. Once our offer is accepted you will have an inspection period to ensure the home does not have any major hidden issues, and if we need to cancel the purchase due to a bad inspection no earnest money will be lost. We will walk you through every step of the way and be available to answer any questions or concerns you may have.
Is a Professional Appraisal Required With a Contract for Deed?
It is not a requirement typically with a contract for deed as this is a common rule from banks. As you may be able to guess the seller is obviously not going to have a problem with the valuation of property since the purchase price is what they set. This is why in a traditional contract for deed purchases it usually is a good idea for the borrower to obtain their own private appraisal on the property. It can cost up to $450 on average, but is well worth it to the buyer.
However, with our specific financing program where we are purchasing the home from seller in order to close on a contract for deed with you we will be obtaining an appraisal. This is an added benefit to you as the borrower for using our financing program.
Are There Closing Costs Involved?
There will be some closing costs involved for our acquisition of the property, which we will ask the seller to pay for during negotiations. This is done so there is nothing else due from you at closing besides the down payment. As a rule of thumb closing costs will equal about 1.5% of the purchase price ($3,000 on a $200,000 purchase).
When is My Down Payment Due?
Are There Down Payment Assistance Programs Available?
Why is the Down Payment Higher With Contract for Deed?
Why Are Interest Rates Higher on a Contract for Deed?
Interest rates are higher with private financing versus a bank that can borrow at low rates and still profit on a 4% mortgage. This is partly because banks only lend to the highest qualified borrowers. Much like the down payment; a higher interest rate compensates for additional risk associated with contract for deed since credit plays no role in the the qualification process. In other words, contract for deed financing should only be used when all bank options have been exhausted.
Who Pays Property Taxes & Homeowner Insurance?
You the borrower pays property taxes & homeowner insurance separately from the monthly payment when they become due. With contract for deed financing there are no escrows that are typically used with traditional bank lending (the bank pays this on your behalf and it gets added to your total monthly payment).
What this means is your monthly payment to us is only principal & interest (pi). Keep this in mind for budgeting purposes. Every listing should state current property tax amounts. For payments it is twice a year (May 15th & October 15th). As for homeowner insurance you will get this through your preferred company as there are discounts with combining home & auto together. Credit plays a factor in homeowner insurance premiums, so the only way to know the cost is to contact your insurance provider. We will be added to the policy in case a claim is made to ensure the property is fixed (example hail damage to roof). This is fairly standard practice for loans on a property to ensure repairs are made.
Lastly, keep in mind that insurance and property taxes need to be kept current just like your monthly payment. Getting delinquent with either of this constitutes a default in a contract for deed.
Do I Need to Attend Closing?
The closing shall be up in the Alexandria, MN area so you do not need to attend closing. We will pre-sign the few closing documents needed from you, and that way you can focus on the final walk thru that gets completed typically the day we close. We want to make sure nothing has changed with the home since the inspection period (air conditioner goes out for example); as well as the seller has sufficiently cleaned the house and removed all trash. We will instruct the seller to have all keys/garage door openers at the home, so once the closing is completed you can move in!
Is the Buyer Responsible for Recording the Contract for Deed After Closing?
No. Our title company shall record the contract for deed with the county on your behalf. You will get a recorded copy that can be used to homestead the property, which is usually 3-7 business days from closing.
Can I Set up Automatic Payments for My Due Date?
Yes, and this is the preferable method. Borrowers who elect to send a check every month will need it to be in the form of a cashier check.
Can I Pay Off the Loan Early or Make Extra Payments?
Yes. There is no pre-payment penalty with our contract for deed financing. This means you can pay off the loan/refinance into a bank mortgage at any time. You can also make extra payments on the principal at any time. This assumes you are current on: monthly payments, homeowner insurance, and property taxes (any extra payments go towards delinquent amounts first).
Can I Claim a Contract for Deed on My Taxes?
Yes! This is one of the biggest benefits versus rent to own as an example where you are still in a tenant/landlord relationship. Check out our page that goes through all the advantages to the buyer in a contract for deed to learn more.
Is There A Due On Sale Clause?
No there is not. The lenders we work with know that we are selling the property to you on a contract for deed, so this clause is removed from the loan product.
Will Contract for Deed Payments Show up on My Credit Report?
We do not report payments to the credit bureaus, which is common with contract for deed unlike bank financing.
However, when you go to refinance the home with a bank mortgage the lender will contact us to verify payments made during the loan. It will have us state if you had any missed payments, current payoff information (the remaining balance left), etc. so this is still beneficial for refinance purposes.
What if The Seller Stops Making Payments on Their Mortgage?
There will be language included in the contract for deed allowing the borrower through written request to have statements provided showing all mortgages/liens being paid on time. A simple email to us is sufficient.
If the seller were to stop making payments the buyer may pay the mortgage instead, and deduct these payments from their monthly contract for deed payment.
The strictest lending standards are used for our company’s business financing. if we were to even miss 1 payment on any of our contract for deed homes it would be impossible to gain business from any bank or lender.
Therefore, borrowers can have peace of mind knowing that our bank mortgage lenders are constantly ensuring we are conducting business with the highest professional standards.
Is it True I Can Lose The House if I Miss 1 Payment?
No. Contract for deed sellers who try to do this open themselves up legally for predatory lending and is not something we do.
With that said; borrowers should be mindful that contract for deed has very different rules than bank financing when it comes to defaulting on the loan. If the borrower misses two payments the seller does have the ability to cancel the contract with written notice.
There is then an additional 60 day period after the borrower is served a notice to get current with payments.
Let’s go through a timeline then to determine what a default means in contract for deed. Keep in mind house payments are paid in arrears (ex: August 1st payment is for the month of July).
1) A borrower misses their due date. A standard contract for deed form used in Minnesota states the borrower has a 15 day grace period from their due date to make the monthly payment without penalty.
2) After the 15 day grace period the borrower will be charged a 4% late fee on the total payment, which will be added to what is past-due.
3) If on the 2nd month’s due date the buyer fails to make a payment again they are now considered to be in default (60 days late). At this time the seller could choose to proceed with cancelling the contract with written notice in order to take the house back.
4) There is a 60 day reinstatement period beginning the day borrower was served the cancellation notice allowing time to get caught up on payments. There will be additional legal fees involved the borrower must pay on top of their late payments in order to get caught up.
5) If the borrower fails to get caught up by the end of 60 days they will lose their down payment and principal payments on the loan, and the seller will take the home back.
In total from the first missed payment 4 to 5 months will pass before the home is forfeited at the earliest. Borrowers should therefore feel confident in their ability to make the monthly payments then before entering into any contract for deed.
Keep in mind you can always sell the home to recoup your down payment and principal paid on the loan.
Can I Sell My Home if I Cannot Make The Balloon Payment?
As the owner you may sell the property at ANY time during the contract for deed. In fact, it is highly recommended borrowers do this as a last resort if they are unable to obtain bank financing by the balloon payment date. At the very least you do not need to lose your down payment along with principal paid towards the loan balance.
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Bad or no credit is OK! This contract for deed financing program is strictly income & cash down payment based.
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