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What Is Contract For Deed on a House in MN?

An explanation of seller/owner financing or land contract, how it works, and typical contract for deed terms
ContactCommon FAQs

How Contract For Deed Works in Minnesota 

Contract for deed in Minnesota is sometimes referred to as a land contract or owner/seller financing, which allows the owner of real estate property to finance a buyer during a purchase transaction.

Since no banks are involved the advantage to the buyer is flexibility on loan qualifications such as income or bad/no credit. This is why contract for deed is the #1 alternative home financing option in MN for buyers who can not qualify for a bank mortgage.  

Feel free to head over to our frequently asked questions page that also addresses many questions relating to how our contract for deed program works.

Does a Contract for Deed Transfer Ownership?

In a contract for deed ownership is transferred with the borrower taking equitable title to the property. The home buyer reaps the benefits of any increase in the house’s value; whether that be through rising home prices or a kitchen remodel that gets completed. This also allows the buyer in a contract for deed transaction to sell the home at anytime.

In return, the seller will retain legal title to the property until the loan and terms outlined in the contract for deed are satisfied; usually by means of an eventual refinance into a bank loan or sale.

Once the borrower has fully satisfied the loan with owner of real estate property they will be given a warranty deed to property that gives them full legal ownership.

That is why this type of real estate transaction is called contract-for-deed.

Typical Contract For Deed Terms

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). 

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.

It is common for there to be a balloon payment in a contract for deed, which allows the contract for deed holder (seller) to dictate how long they are willing to financing the transaction. For our loan program this is typically set for 5 years, which allows enough time for the buyer to either refinance into a bank mortgage or sell the home. 

It is also common for balloon payment dates to be extended assuming the buyer stays current with payments, but there can be no legal guarantees at the time of signing the contract for deed. 

How are Contract for Deed Payments Calculated 

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

Ex: $200,000 sales price minus $20,000 down payment = $180,000 loan amount

During the contract monthly principal and interest payments are being made on the loan, 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.

 

 

 

 

 

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Chris-Block

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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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1210 Broadway Street,
Suite 240,
Alexandria, MN 56308

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