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Contract for Deed

[2019 UPDATES] Contract For Deed: The Ultimate Guide

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Contract for Deed Home Financing in 2019

Contract for deed home financing is a great option for those individuals struggling to get a traditional loan from the bank. Now, let’s get into the details.

Conventional financing, in 2019, as we all know, is the preferred home loan vehicle. This refers to a standard mortgage loan from a licensed lending institution, and typically can be a15 or 30 year loan with a down-payment that ranges from 3 percent to 20 percent. The higher your credit score, the better deal you will get.

Even before you find your dream home, you should obtain mortgage pre-approval from your lending institution. While pre-approval does not guarantee that everything will go smoothly, it does provide you with significant negotiating power when dealing with sellers.

Applying For Conventional Financing

Your parents probably had to spend an afternoon at a banker’s office when they applied for their first home loan. Now, you can do this by phone or online, although you will eventually have to sign closing documents in person. Some important things to do and factors to be aware of are:

  • Know your credit score.
  • You can easily see this number at Credit Karma, and the service is free.
  • Determine what factors make you less attractive.
  • High student loan balances, maxed out credit cards, judgments, liens, unpaid taxes and underreported income can hurt you.
  • Analyze your actual credit report and correct errors. The FTC reports that one of every five credit reports contains inaccuracies.
  • Optimize your credit status by paying down card balances to below 30 percent; do not make any large credit purchases while attempting to secure home financing.

Understanding What You Can Afford

Banks have certain debt to income ratios that they do strictly enforce. The Consumer Financial Protection Bureau (CFPB) explains:

“Your debt-to-income ratio is all your monthly debt payments divided by your gross monthly income.  This number is one way lenders measure your ability to manage the payments you make every month to repay the money you have borrowed.”

To calculate your debt-to-income ratio, you add up all your monthly debt payments and divide them by your gross monthly income. Your gross monthly income is generally the amount of money you have earned before your taxes and other deductions are taken out.  For example, if you pay $1500 a month for your mortgage and another $100 a month for an auto loan and $400 a month for the rest of your debts, your monthly debt payments are $2000. ($1500 + $100 + $400 = $2,000.) If your gross monthly income is $6000, then your debt-to-income ratio is 33 percent. ($2000 is 33% of $6000.)

Evidence from studies of mortgage loans suggest that borrowers with a higher debt-to-income ratio are more likely to run into trouble making monthly payments. The 43 percent debt-to-income ratio is important because, in most cases, that is the highest ratio a borrower can have and still get a qualified mortgage.

Housing Affordability

Finding Your Home

You can spend all day trolling Trulia and Redfin, but many times you can be missing out on homes for sale that only Realtors can easily access. Remember, sellers pay real estate commissions—you don’t—so avail yourself of this free service and find a good Realtor.

Finding Your Home With Contract For Deed

Working With A Contract for Deed Realtor

The Realtor/client relationship is a two-way street. If you are a type A personality and want all of your texts answered within two minutes, make sure your Realtor is as hyper as you are. Conversely, don’t expect your Realtor to work miracles with incomplete or false information. For example, don’t inflate your income and/or minimize your debts at your first meeting. In the credit world, there are no secrets, so be upfront with you Realtor.

Turned Down For Traditional Financing?

Mortgage Rejection

Those that give up after being rejected for a home loan end up renting apartments while those savvy enough to understand that there are alternatives to conventional financing will look at the rejection as a bump in the road and move forward. Rent to own is one way to become a homeowner, but a preferred method is MN contract for deed. In a rent to own situation, you pay rent to a property owner that may put aside a portion of your monthly rent as a down payment for a future purchase.

If everything works out, either the seller provides financing or you obtain it at some later date. In a contract for deed sale, you sign a contract that states that you will be given the deed to the property you are occupying after you make all of your required payments. Contract for deed is seller financing, and while interest rates can be a bit higher than conventional financing, credit requirements are typically significantly more lenient.

Finding Contract For Deed Opportunities

There are a limited number of MLS contract for deed listings.  If you’re lucky, you might find the right opportunity in a nice location. At C4D, however, we give you an advantage that others that wish to utilize contract for deed just don’t have. Just bring the home you wish to purchase to us. If we can do the deal, we will purchase the home and sell it to you on a contract for deed basis. We have paved the home ownership road for many that were rejected for conventional financing. Application is easy—just go to our website. C4D has the financial power behind them to make these deals happen.

Contract For Deed Documentation

While C4D offers less stringent credit requirements, we still will need pay stubs and bank statements. We look, however, at your situation today, and we care a lot more about what you can do now than what bad things have happened to you in the past. At C4D even high student loan balances and recent bankruptcies are not necessarily the hindrances they would be at a large bank.

Contract For Deed: How It Works

Although the nightmare of waiting 60 days or more to close on even great credit deals is generally behind us, banks take longer than we do at C4D. We usually can close deals in as fast as two to three weeks.

MN Contract For Deed Costs

We’re upfront about all of this. We do require an origination fee and we do add a small initial property markup. And, the interest rate you pay will be higher than the prevailing conventional mortgage interest rate.

Contract for Deed: What Problems?

We have many satisfied former renters that are now homeowners. We are transparent and forthright. If we can help you, we do everything possible to get your deal done. We are MN contract for deed experts, and happy customers are our paramount concern.

If you deal with an individual that is offering a contract for deed, you have to do serious vetting to ensure that there will be no problems with your deal in the future. With C4D, this is not necessary.

Contract for Deed: True Disclosure

When we purchase your home, we get a loan from our bank. With the blessing and full knowledge of our bank, we then sell the property to you with a MN contract for deed. You make your monthly payments to us and we, in turn, make our payment to the bank. But check this out:

We’ve never missed a payment and don’t ever plan on it.  In addition, we’ve worked with our bank partner to have an assignment of contract included in your documents that basically says if we stop paying our lender, you can pay them directly and your contract remains intact.

You won’t find this protection with most individual contract for deed sales. In fact, many times the seller’s bank isn’t even made aware of the transaction, and this can throw the original mortgage into default because of the due on sale clause that is embedded in almost every mortgage note. Our agreements with our bank do not have due on sale clauses.

Everything is upfront and at closing the contract is recorded at the appropriate County.

Helping You Refinance

Our goal is to get you into a home and ultimately help you refinance with a traditional lender.  We have relationships and systems in place to help make this happen. Typically, we can help people refinance within three years of purchase.

For the Realtor: Turned Down? There Is Still Hope!

So you spent weeks trying to get your buyer and seller agree upon a price. Both were difficult at times, and when you finally got all sides to listen to reason, an old unpaid judgment appeared and derailed the financing. After you’re done binge watching House of Cards to ease your pain, give us a call. We have been able to resurrect many deals that have been turned down by others.

Realtor Contract for Deed

We are a reputable, experienced and recognized company that does MN contract for deed. You bring us the buyer and the property, we buy the property and sell it to your client on a contract for deed. Even if you have an iffy buyer with shaky credit and you have not yet found the perfect property, bring them to us; we will get many of them pre-approved and send them back to you.

Is My Commission Protected?

Realtor Commission

You betcha! 80% of our referrals come from realtors, and they wouldn’t keep coming back if we didn’t guarantee that their commissions would be protected.

The Deed

Contract for deed means exactly that.

  • We buy the property.
  • We hold the deed.
  • We sell the property to the buyer.
  • They occupy the home.
  • They make their monthly payments.
  • At the end of the contract period, we turn over the deed and they are homeowners!
  • They can also refinance early with a traditional lender, and this is something that we will facilitate.
  • In addition, the buyer actually has equitable title, and can sell the property at any time if they wish to move on.

What About Financing?

Yes, we use a bank.

  • Our bank gives us a mortgage.
  • Our bank knows what we are doing.
  • The buyer pays us and we pay the bank.
  • We are never late.
  • We never miss payments.
  • Our mortgage with our bank does NOT include a due on sale clause.
  • In fact, we have an assignment of contract put in place that basically says if we stop paying our lender, the buyer can pay them directly and the contract remains intact!

The Final Paperwork

We will hold your client’s hand from application to closing. We will assist with all documentation and paperwork.

When The Offer Is Accepted

At this point, Taylor and the C4D Crew take over.  We work directly with the lender and title company to schedule closing and work out all the paperwork.  The C4D Crew will also work directly with the C4D buyer on all the paperwork and logistics for the day of closing This will be one of the easier transactions you do this year!

Down-Payment

Contract For Deed MN Down Payment

A down-payment is of course necessary, but the down payment be gifted to the buyer in a C4D transaction. Just make sure your clients speak with their accountant for possible tax implications.

C4D Crew Reputation

We can provide you with client references. Just by looking at our website you can see that we provide tons of valuable and free information about MN contract for deed. Of course, we are in business to make money—so are you—but we are also dedicated to helping those with compromised credit become homeowners.

How Long Does It Take?

From the time you and your client find a home they’d like to buy, and an offer is accepted, we can close as quickly as two to three weeks.

Credit Score Minimum?

We don’t have one. We look at every deal individually. Prior BKs, student loans, judgments divorces and tax liens are all issues we can work around.

Credit Score

Can You Approve Any Deal?

In short, no. We are not going to lie and tell you that we can do anything, but you would be amazed at what we can accomplish.

Call Us About Contract For Deed

MN Contract For Deed

Again, just because the loan officer rejected your client’s loan, your deal is not necessarily dead. Contact us and we’ll quickly get started on a contract for deed program that can make your client’s home ownership dream a reality.

First Time Minnesota Home Buyer Programs

 1000 500 Sam Radbil
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While you may think that you are at a disadvantage being a first time home buyer, there are Minnesota first time home buyer programs that can assist you. First, let’s talk about the difference between being a first-time buyer and a multiple-time home buyer.

The U.S. government and the State of Minnesota both want everyone to be able to participate in the American Dream of home ownership, but they realize that there are barriers to entry. One of the biggest problems is the ability to accumulate a large enough down-payment. Initial down-payment requirements can range from zero to 10 percent or more. Ten percent on a $200,000 home is $20,000, and that can be difficult for a new buyer to come up with.

What Do You Know About Closing Costs

Another issue is closing costs, even with Minnesota first time home buyer programs. If you have good credit (yes, you can still buy with bad credit), and you are offered a credit card, there are usually no fees involved. Even with some personal and auto loans, there can be very in fees required to complete the transaction. Look, however, at this list of closing costs for a residential home loan:

Item

Fee
Loan Origination Fee

$2,500 (1%)
Discount Fee $625 (0.25%)
Processing Fee $450
Underwriting Fee $500
Wire Transfer $25-$50

Credit Report

$35
Tax Service $50
Flood Certification $20
Title Insurance $550
Escrow/Signing $450
Courier Fee $20
Appraisal $450
Recording $110

Homeowner’s Insurance first year premium

 $700
6 Months’ Property Tax Reserves

$1,500

Those are a substantial amount of potential fees, and closing costs can easily rise to almost $10,000 in some transactions. Yes, you can try and get the seller to pay for some of these, but again, closing costs can be a problem to overcome. Luckily, there are Minnesota first-time home buyer programs in place to help.

National First Time Home Buyer Programs

First let’s talk about national programs. VA loans are available for veterans and they require no minimum credit score, low down-payment requirements, and do not require PMI or private mortgage insurance. There usually is a VA funding fee, however. If you are a veteran, first look to the VA, as this is one of the most advantageous programs out there.

If you’re not a veteran, you can investigate FHA Minnesota first-time home buyer programs. FHA loans can usually be done with only a three percent down-payment requirement. Even if you have a very low credit score, you still can possibly get a loan with a higher down-payment rate however.

Minnesota First Time Home Buyer Programs

Minnesota First Time Home Buyer Programs

According to our friends a www.nerdwallet.com, “As a [Minnesota] first-time home buyer, you may benefit from loan programs offered by the Minnesota Housing Finance Agency, or Minnesota Housing. If you’re eligible for these programs, you’ll also have access to down payment and closing cost assistance. Minnesota Housing defines a first-time home buyer as anyone who hasn’t owned a home in the past three years; however, certain programs are available to repeat buyers as well.”

Check out this site for further information.

What Are The Alternatives?

As we have consistently mentioned, we like traditional financing and hope that you are approved for it. But even if some of the available Minnesota first-time home buyer programs don’t work for you, please contact us at C4D. We are Minnesota contract for deed experts, and we have ways to provide the path for home ownership that others do not.

Typical Down Payment On A House

Your Typical Down Payment On A Home

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Buying your first Minnesota home can be an exciting yet stressful time. You want to find the perfect property in the perfect neighborhood while negotiating a great price, and you want to get all of this done before someone puts in a better offer. You also want to find the ideal down payment on a home. That’s hugely important. So, what’s next?

Once you have accomplished that, you still must obtain financing, and that opens a load of uncertainty. First time Minnesota homebuyers have a lot of questions, and one of their main worries is, “how much money do I need for a down payment?” Whether you are working with a realtor contract or looking for alternative financing like a contract for deed, this LendingTree chart is helpful as it shows state by state average required down payments:

Down Payment House Chart

Consistent

As you can see, average down payments fall into the 11 to 13 percent range. This doesn’t mean, however, that there aren’t alternatives. Actually, in today’s mortgage landscape, you can expect to pay somewhere between three and 20 percent of the sales price as a down payment. Government backed FHA loans do have that three percent first-time buyer down payment rate, and you can obtain some VA loans with no money down.

Higher Risk?

Zero Down Payment

If your down payment is lower, your lender will perceive you as a higher risk, and the result may be a higher interest rate.  Again, government programs including the Agriculture Department’s Rural Development Program can cut your rate, but generally, the less you put down, the higher your rate may be. Also, simple math tells us that the less you put down, the higher your mortgage loan balance will be, and that of course translates to higher monthly payments. Also, consider that for most loans with a less than 20 percent down payment, you may need private mortgage insurance or PMI. This can easily add $150 or more to your monthly payment.

Typical Down Payment

Calculator.net is a great site that can help you figure out exactly what your monthly payment will be, as it walks you through taxes, PMI, homeowner’s insurance and other costs. There is even a place to enter other costs if you are, for example, buying a house with student loan debt.

Solutions

So, you’ve calculated that you need a $10,000 down payment to finance your home but are worried that it’s going to be difficult to save that amount. Here are some ideas:

  • Use your IRA.
  • Borrow from friends.
  • Search for government down payment assistance.
  • Ask your rich uncle for a gift.
  • Sell stuff.
  • Get rid of your car.
  • Ask your boss for help.

Alternative Financing

Sometimes non-traditional financing can be attained with a lower down payment. Rent to own and contract for deed are two popular alternative financing vehicles.

Contract for deed mn is a popular non-traditional method used to purchase homes. Rocket Lawyer tells us,

“under a Contract for Deed, the buyer makes regular payments to the seller until the amount owed is paid in full or the buyer finds another means to pay off the balance. 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. If the buyer defaults on the payments, the seller can repossess the property. In some states, a seller who repossesses a property must reimburse the buyer for the fair value of improvements to the house, as well as a reasonable amount for rent.”

Again, those that choose a contract for deed transaction many times find that down payment requirements are more flexible than those of traditional financial institutions. At C4D, we can handle all facets of Minnesota contract for deed transactions; they may be worth checking out. And as always, never enter into any real estate contract without first consulting legal counsel.

Minnesota Contract For Deed: 2018 Realtor Guide

 1024 451 Sam Radbil
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As a Minnesota Realtor, you have probably seen some bizarre and arbitrary loan rejections, but that doesn’t make you or your client feel any better. Approaching a lender for bad credit loans may not help since their rates can be predatory. What you do need to do is find a lender that will facilitate a contract for deed deal.

For example, you’re confident that you have a reasonably qualified client, and you’ve found them the perfect home. Your client is excited, has a down-payment, you write the offer, it’s accepted, and you’re off to the bank. The bad news comes quickly, however, as the lender claims that your buyer doesn’t qualify for financing. According to GoBanking Rates, buyer financing can be denied for not only a weak debt to income ratio but also for any of the following reasons:

  • A recent job change.
  • Credit report errors.
  • A property appraisal that comes in less than the purchase price.
  • Old liens and judgments.
  • Recently opened or closed credit card accounts.
  • Early retirement.
  • Excessive business debt.
  • 1099 income/inability to prove written off expenses.
  • Questionable tax returns.
  • Inability to substantiate where the down payment came from.

Legitimate Financing with Contract for Deed

The Minneapolis Federal Reserve Bank wrote a great article explaining the methods, risks and benefits of a contract for deed to finance Minnesota real estate. They simply state:

In a contract for deed, the purchase of property is financed by the seller rather than a third-party lender such as a commercial bank or credit union. The arrangement can benefit buyers and sellers by extending credit to homebuyers who would not otherwise qualify for a loan. Indeed, public and nonprofit housing advocacy organizations have used the contract for deed as a tool to help low- and moderate-income households attain homeownership.

This U.S. census bureau chart shows a solid percentage of contract for deed homes and Hispanics are major subscribers to this type of bad credit loan solution.

Owner-Occupied Homes with Contracts for Deed in The U.S.

Minority Homebuyers Using Contract For DeedSource: American Housing Surveys 2001, 2003, 2005, U.S. Census Bureau.

Minorities Want To Buy Homes

Furthermore, this recent report from ABODO shows Realtors in Minnesota exactly where minority homebuyers are active, and Minnesota is right in the middle at 40 – 49 percent.

ABODO Report on Minority Homebuyers

The Mechanics of Contract for Deed Minnesota Financing

For individual contract for deed sales to work properly, the seller must realize that they will not get the full purchase price immediately. Instead they are offering an installment plan sale to their prospective buyer. While the buyer will gain immediate occupancy, the seller still holds the deed will remain the owner of the property until all payments are made. This is a great path to home loans with bad credit for the buyer, but the seller, again must be in a position to take installment payments rather than receiving a lump sum payment.

Free and Clear … and Legal?

Contract for deed Minnesota home financings are simpler if the seller owns the property free and clear of all liens and mortgages.  This way, the seller must wait until all installment payments have been made, but since there are no third parties—like banks—to deal with, all of the money goes to the seller; they merely have to wait longer to get the total amount due them.

While a seller with a bank mortgage on a property could sell that property on a contract for deed basis, this could be a problem for a buyer since the seller’s original mortgage may prohibit this type of transfer, and that could put the buyer at risk, if the bank discovers the sale.

In many states, especially Texas, this kind of solution to a loan with bad credit is done frequently. When the buyer asks about the due on sale clause in the seller’s original mortgage, the usual reply is “the bank will never find out, and if they do, they won’t care. Banks would never foreclose on a property if someone is making the payments.” Yes, this may be the case in some situations, but you as a Minnesota Realtor know that it is not prudent to believe that someone “would never” do something.

How You Can Get This Done

Luckily, there are companies like C4D. C4D specializes in Minnesota contract for deed deals. Unlike some individual sellers, however, C4D does not put the buyer at risk with original mortgage due on sale clauses because their banks do not require them. C4D has spent years developing solid banking relationships, and this drives successful and mutually beneficial financing arrangements.

How Contract for Deed Actually Works

Certainly, Minnesota real estate professionals should try first for conventional bank financing. If this fails, however, take the deal to C4D. C4D will analyze the situation, and quickly let you know if they can help. Minnesota Realtors understand that while C4D cannot automatically take any deal, they do have the approval leeway that many banks just do not possess.

C4D looks at every deal individually and independently. This is not cookie-cutter lending because C4D understands that all situations are different. Some loans may require different down payment percentages, and in certain circumstances, C4D can even help secure down payment dollars.

If a deal is approved, C4D physically buys the property from the seller and offers a contract for deed to the buyer. As in classic contract for deed financing, the seller owns the property, but the seller is now C4D.

Contract For Deed Is Simple

Since the 2009 meltdown, mortgage approval can be tricky. You can have a great buyer but the banks just say no. If this happens to you, bring your deal to C4D—a local Minnesota company—and see what they can accomplish. By the way, your Minnesota Realtor commission is totally unaffected by this process, and you will receive the full amount upon contract execution.

What are the Next Steps?

If you have any questions about Contract for Deed financing, you can always contact us here.