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Reason for a Contract for Deed

MINNESOTA CONTRACT FOR DEED

Although most Contract For Deed can be used for a variety of reasons, their most common use is as a form of short-term seller financing. Usually, but not always, the date on which the full amount of the purchase price is due will be years sooner than when the purchase price would be paid in full according to the amortization schedule. This results in the final payment being a large balloon payment. Since the amount of the final payment is so large, the buyer may obtain a conventional mortgage loan from a bank to make the final payment. The buyer also has the option of selling the property. Contract for Deeds are sometimes used by buyers who do not qualify for conventional mortgage loans offered by a traditional lending institution, for reasons of unestablished or poor credit,Lack of job history, self employed, filed bankruptcy or an insufficient down payment. Contract for deeds are also used when the seller is eager to sell a property or wants to cash flow the property to make money verses keeping the money in the bank.

There can be other advantages of using a Contract for deed too. When a third-party lender, such as a financial institution, provides a loan, this third party has its own interests to protect against the other two parties involved, the seller and buyer. Establishing the correct title and value of the property to be used as collateral is important to the lender. Thus, the lender commonly requires title service including title search and title insurance by an independent title company, appraisal and termite inspection of the property to ensure it has sufficient value, a land survey to ensure there are no encroachments, and use of lawyers to ensure the closing is done correctly. These third party lender requirements add to closing costs which the lender requires the seller and/or buyer to pay. If the seller is also the lender, these costs are usually not required by the seller and may result in closing cost savings and fewer complications. It may also be the seller’s position that if the buyer requires any of these services, he could pay for the costs and make arrangements himself. For properties where only relatively undeveloped land is involved and if the seller is willing to finance, the price of the empty land may be so low that the conventional closing costs are not worthwhile and can be an impediment to a quick, simple sale. Easy financing and a simple sale transaction may be a good selling point for a seller to offer a buyer.

A Contract fro deed is a unilateral contract and cannot be assigned to another buyer without the consent of the seller providing the financing. Example Sale price $200,000 buyer puts 10% down (

$20,000 the seller finances the home for say 5 years. The rate is 5% in this situation amortized over 30 years.. The payment would be $966.28 per month plus taxes and home owners insurance.

Recording the contract for deed

Within four months of signing the contract for deed, you must “record” it with the office of the county recorder or registrar of titles in the county in which the property is located. If you do not do so, you could face a fine.

Who pays taxes on a contract for deed?

Recording the contract will also help prove your possession of the property and protect you from post-contract encumbrances placed on the property by the seller.

On a land contract, the buyer is responsible for property taxes, insurance and mortgage interest, although these will usually get paid through the seller. The buyer does get to deduct them from his or her taxes; the seller cannot.

Is a Contract for deed/Owner financing good for a Seller/Owner?

A contract for deed also know as Owner financing lets the seller/Owner enjoy a steady cash flow without the hassles of managing it as rental property, and also offers an asset or equity interest in exchange for other property.

Can I refinance a Contract For Deed?

In most cases  CD home owners may be able to refinance their contract for deed, though they will need to work with a mortgage lender or credit union. In a contract for deed refinance, the seller currently providing your financing sells the cd buyer the property and buyer will use a new mortgage loan to purchase it and gain legal ownership.

Who Pays Closing costs on a contract for deed?

The buyer pays their portion of closing costs and the seller pays their portion plus realtor fees if there is a Realtor involved in the transaction. The seller gets to deduct those costs, as well as any mortgage interest, on his or her tax returns. On a contract For Deed, the buyer is responsible for property taxes, insurance and mortgage interest, although these will usually be paid by the seller.

Who Owns the Property in a Contract For Deed?

In a Contract for Deed, the buyer makes regular payments to the seller until the amount owed is paid in full or the buyer finds away to pay off the balance. Usually thru a mortgage. Buyer can sell their home with out refinancing on a contract for deed. The seller retains legal title to the property until the balance is paid; the buyer gets legal title to the property once the final payment is made.

How Much is a down payment on a contract for deed?

Contract for Deed Home Owners usually request a 10%- 20% down payment, a higher interest rate and usually a three to five-year with a balloon clause. Investors will want close to 20% down of the sale price of the property also usually an uncharge to buy a property for you.

Is an appraisal required when purchasing a property on a contract for deed?

There is no requirement to do an appraisal when buying a property. If the buyer wants to they can but typically buyers do not want to pay out an extra $400-$800 for one if they don’t need too.

How do I report My contract for deed on my taxes?

Most of the time contract for deed sellers use IRS Form 6252 to report installment sales in the year in which they take place. You also use Form 6252 during each year you receive income from your contract for deed. Talk to your tax account for more details.

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NAR -Realtor

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