Buying a house WITHOUT a mortgage can be an exciting adventure! Our 5 Step Contract for Deed program can help ensure the process is as smooth as possible, while avoiding the risks and stress of this outstanding real estate investment tool. We’ll help keep the process as transparent as possible while we will help you understand the process – from steps you should take at the beginning of your search through the closing on the house. While there are a lot of details involved, taking the right steps and making informed decisions will make your new house purchase go as smoothly as possible.
Before we start….
Contract for deed’s (aka, ‘Seller Financing’ or CD’s) are regulated at the state level compared to most mortgages being regulated from the federal level.
Minnesota, for example, recently passed legislation that severely impacts families from purchasing a home (they can only rent until they qualify for a mortgage). So in Minnesota, our program is only for investors who will not personally occupy the property….who will likely rent to those who can no longer buy using a contract for deed.
Florida’s regulations treat contract for deeds similar to a mortgage (foreclosure process if necessary), but require the seller to carry the homeowners insurance until the buyer satisfies the contract for deed. A-Good-Deed will be providing lease-options, not contract for deeds in Florida.
Finally, it will help you tremendously to define your goals! Set financial goals of maximum down payment and maximum monthly payment that fits your budget. Clarify your monthly and annual income amounts, know your monthly debt obligations, check your credit score (good for determining your ‘exit strategy’) and confirm your bank and retirement assets. Then define your desired home goals – area, type of home, must-have amenities, etc. Plan to be flexible on some of these requirements, but starting with a best-case list will be helpful.
STEP 1 – Pre-Qualification and Pre-Approval
Successful contract for deed buyers must have:
- A minimum of 20% down payment (or $60,000, whichever is more)
- Reasonable monthly debts compared to monthly income, including the new house payment
- A plan to pay off the contract within five years (usually by refinancing into a mortgage)
We can then discuss specific details to ensure our program is a good fit for you financially. It is always recommended buyers first discuss mortgage options with a mortgage consultant to help determine steps and timing to qualify for a mortgage. The responses to these 6 questions may help clarify if A Good Deed Contract for Deed is right for you.
Assuming pre-qualification is acceptable, pre-approval can be just as quick: gather a few documents to prove assets and your company ownership (or income) and apply!
Start the Pre-Approval process HERE
(hint: you can upload the asset and your company documents)
STEP 2 – Finding A Home ~ The most exciting part of the process.
A Good Deed will work with your Realtor (or refer you to one familiar with our program) to help you identify homes and properties that meet your financial goals. Keep in mind sometimes there is more demand for specific homes, so be prepared to move quickly AND don’t fall in love with real estate (until you are in control of it!)
Do you want to discuss details of your ideal property?
STEP 3 – Making A Offer ~ the most frustrating part of the process
Once you’ve found the right home, it’s time to make an offer! Here’s where a good Realtor earns their money – showing you the home is the easy part. Helping you through the offer, inspection and closing is where great Realtors shine!
Be careful not to over analyze a property. This can be a wasted effort if its off the market after all your analysis. You’ll likely have a week or so (sometimes more or less) to sleep on it, get a contractor (or relatives) opinion, etc. Your Realtor will discuss various inspections on the home and property. As in any home purchase, the buyer coordinates any desired inspections with their Realtor… and inspection are typically the buyers expense. A Good Deed does not require inspections unless there are obvious issues with the home.
Sellers can counter your offer, inspections can reveal possible repairs, and you can suddenly find your budget at risk and maybe even question if this is the right home for you. Above all, stay calm and continue to communicate with everyone involved. Check your budget, your emotions, and your Realtor to make the next right steps. hint: focus on a comfortable house payment, NOT the home price. Market conditions will dictate home prices….which are important if you are going to sell the home soon (known as FLIPPING).
Step 4 – Deciding to move forward
‘A Good Deed’ contract for deed involves TWO transactions, so there are some differences on moving forward. By the end of your inspection period, you’ll provide your earnest funds to the title company’s trust account (earnest funds = down payment). This is unusual compared to a mortgage or cash transaction where buyers bring down payment to closing, but necessary due to the multiple parties, transactions and commitments in the process. If the new home is contingent on the sale of another property, the earnest funds are minimal.
The buyer will typically choose their own homeowners insurance company. A local agent is preferred (vs. a national call center) since there may be adjustments prior to closing. We also have a few referrals of competitive insurance providers we have seen clients use over the years.
The timing for CLOSING can vary, but the average is 30 days. Typically, within a few days of closing, you’ll do a final walk-through to check that all agreed-to repairs are completed and that the home is in the expected condition.
At closing, you will have some expenses to pay, including:
- Realty admin fee (your Realtor’s brokerage fee)
- Annual homeowners insurance premium
- Daily property taxes and interest from the date of closing through the end of the month
- Any association dues and expenses, if applicable
STEP 5 – Complying with your contract terms and paying off your CD!
Congratulations, YOU are in control! Don’t forget that you do need to make your contract payments and adhere to the other terms of your contract. For the next few months or years, you’ll work towards adjusting your credit and finances and hopefully qualify for a mortgage soon. Refinancing your contract for deed into a mortgage is the ultimate goal…and your mortgage consultant, Realtor and advisors will help guide you so you will one day payoff the contract for deed and OWN the home.
