How Does Contract For Deed Work In Minnesota?

Contract for deed – aka land contract or owner/seller financing – allows the owner of real estate to finance a buyer during a purchase transaction. This is a perfect option if you are looking to purchase a MN house without involving a traditional bank.

What Is Contract For Deed Seller Financing?

We understand that sometimes contract for deed sounds too good to be true when you are tired of dealing with banks. So, what is Minnesota contract for deed seller financing and what can you expect?

When you work with our team at CBlock Investments, there are no banks, no credit checks and no hassle. Continue reading for more information on our program or contact us now to get started. 

Is Appraisal Required For Contract For Deed?

No.

Since contract for deed transactions are a private sale between a homeowner and buyer an appraisal is not required.

However, it is strongly recommended that a buyer obtains their own private appraisal as part of the purchase. The cost of roughly $500 to potentially save thousands of dollars overpaying for a home is well worth it.

It is for this reason we have made an appraisal part of our no credit check loan program to protect homebuyers. If the home appraisal comes under sales price, the buyer will have an option to either renegotiate with the seller or cancel the purchase and have earnest money full refunded.

Does A Contract For Deed Transfer Ownership?

Yes.

Ownership from the sale is transferred with the buyer taking equitable title to the property. The home buyer reaps the benefits of any increases in the home’s value, whether that is through rising house prices or home improvements. The buyer is also able to sell the home at any time.

The seller will retain the legal title to the property until the loan and terms outlined in the contract for deed are satisfied; this often happens prior to the end of the contract via a refinance or sale. At this time the buyer will be given the warranty deed that provides them with full legal ownership of the property.

What Is A Typical Down Payment On A Minnesota Contract For Deed?

The typical cash down payment is about 10-20% of the house price. The higher down payment is key to reducing risk for sellers since no credit check is performed.

What Are Typical Contract For Deed Terms?

We offer financing consisting of a 30-year fixed rate with a 5-year balloon payment. In practice, this means that the loan is usually paid off within 5 years through a refinance or sale. However, the buyer’s monthly payment is still calculated based on a 30-year period.

It is common for the balloon payment date to be extended in situations where both parties are happy with the arrangement and the buyer is making payments on time. However, there is no legal guarantee in place for this at the time of signing.

Who Pays Property Taxes/Insurance On Contract For Deed?

Unlike a bank loan, there are no escrow accounts (when property taxes and insurance are included in the monthly payment) with contract for deed. The buyer is responsible for paying property taxes and homeowner insurance separately every year.

How Are Contract For Deed Payments Calculated?

Similar to a bank mortgage, or even a car loan, contract for deed financing is an installment loan. This means there will be an interest rate with a repayment schedule over a specified period of time (ex. 30yr fixed rate).

This means every month when a payment is made a portion is going towards principal and interest, which ultimately reduces the loan balance as time goes on. It is common for sellers to provide an amortization schedule to buyers, which shows exactly how much interest and principal is being paid every month on the loan.

Contract for deed payments are calculated based off the initial loan amount, which is the purchase price minus the down payment.

For example $200,000 sales price minus $20,000 down payment = $180,000 loan amount. We can then add a fixed interest rate of 6% over a 30yr term and using our monthly payment calculator can determine the monthly payment of $1,079.19.

There should be no pre-payment penalty, which allows the borrower to make extra payments and/or refinance into a bank loan at any time during the contract for deed.

Still not sure how contract for deed payments are calculated? You can contact us anytime with a property you are interested in and we can run the numbers for you!

Do You Have To Charge Interest On A MN Contract For Deed?

Yes.

This question gets asked a lot from those where their religious beliefs prevent them from getting a mortgage through a bank. Since the seller is still legally the owner of real estate property in a contract for deed we have found this is an excellent choice for this niche group. Because the seller still owns the home through legal title this does not create a conflict for those whose religious beliefs prevent them from using a bank mortgage.

What Is the Average Interest Rate On A Contract For Deed?

The average interest rate on a contract for deed is determined by the maximum usury rate for Minnesota, a figure regulated by the MN Department of Commerce.

It is the seller’s responsibility to know the current maximum usury rate for any given month. Unfortunately, many sellers may not know or understand the state statutes, which cause unknowing buyers to pay a higher interest rate than they should.

This will never happen when you work with CBlock Investments.

Are Interest-Only Rates Legal On Contract For Deed?

Yes.

But it is typically such a poor deal for the buyer that we do not recommend it.

How Can I Obtain Minnesota Contract For Deed Financing?

You have come to the right place. To get started, call 651-307-7663 or fill out our contact form.

Not finding what you are looking for? Head over to our frequently asked questions page for home buyers.

GET IN TOUCH

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!

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No Credit Check

Bad or no credit is OK! This contract for deed financing program is strictly income & cash down payment based.

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Fast & Easy Application

Get an immediate response on loan approval without all the hoops a bank makes you jump through.

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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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Contact

1210 Broadway Street,
Suite 240,
Alexandria, MN 56308

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