There are MANY scenarios where mortgage lenders are unable to help families purchase a home ~ even with reasonable (or significant) assets and income sources. Although seller financing may be more expensive than a mortgage, the benefits may outweigh the costs – depending on your circumstances and timeline to qualify for a mortgage. So what are the rates and costs of a contract for deed in Minnesota:
Rates – a bit more than mortgage rates
Contract for deed buyers get the lowest rates by putting more down on the purchase of their home. CD rates are determined by BOTH down payment and economic conditions (similar to mortgage rate movements, but not as frequent). An offset to the higher rates: As a contract for deed is not a mortgage, there is no mortgage insurance!
Premium – 1% to 2% annually
The Premium is the difference between our purchase price of the home and the contract for deed sales price to the buyer. The maximum premium is built into the contract for deed. The exact premium is calculated on the buyers down payment and is discounted if paid off within the first four years. In comparison, a mortgage may have an annual mortgage insurance calculated at 1/2% per year (or more!)
Closing costs
As with any large purchase, there are closing costs (third party expenses). These costs are either paid by the current property owner or paid by the buyer at closing. Due to there being TWO closings and THREE sets of costs, plan on 3% for the transaction costs:
- Acquisition of the property from the current owner (bank, title, appraisal, etc)
- Sale of the property to the contract for deed buyer (title and recording costs)
- Upon payoff, there are liquidation costs (deed tax and recording costs)
Below is an example of a $350,000 property with the various contract for deed options, rates, payments AND payoff discounts. Please contact us to discuss any questions and to customize this grid to see if our program and terms are a good fit for you. Rates as of 1-26-24 and subject to change
