Contract for Deed

Those who don’t qualify for a mortgage can still purchase property using a Contract for Deed. With this contract, the seller extends seller financing to the buyer, bypassing the banks and the mortgage. Rather than making monthly mortgage payments, the buyer pays the seller in equal monthly installments, and the deed or title will be withheld until all payments have been made. In essence, the seller retains ownership of the property until it is paid for.
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Frequently Asked Questions

The monthly payments for the Contract for Deed will depend on the term of the agreement. The full price is divided by the total number of term months. Some of the monthly installment goes towards the principal and the rest towards the accrued interest. Buyers might have to pay much higher interest rates than what financial institutions would charge for a mortgage.

The primary benefit for buyers is they can purchase property without applying for a mortgage. A low credit score or bad employment history may not prevent you from entering into a Contract for Deed with a seller, unlike with a bank. Buyers can also negotiate the down payment and forego the fees that come with traditional mortgage loans. It may be faster to execute a Contract for Deed than apply for a mortgage.

As mentioned above, it is possible to agree to a Contract for Deed faster than achieving a mortgage sale. If a buyer defaults on the terms, the seller can terminate the Contract for Deed without refunding the payments collected thus far.

While the goal may be the same — property ownership transfer — the mortgage and the Contract for Deed are two different instruments. The Contract for Deed is between a buyer and a seller, and the seller holds the property title until the contract is satisfied. A mortgage loan is between a buyer and a financial institution; the buyer gets the property title, and the lender holds a lien over it.

Each seller and buyer can negotiate and agree to the term of the Contract for Deed. The average term length is five years, though it can be longer or shorter.