At Slow Flip, the question we hear the most is: why a contract for deed? Why buy a home now? Why not just rent until a mortgage is available?
These are fair questions. Renting is a good option for many people – but there are downsides. When you rent, you’re not in full control of your housing future. Instead, you’re at the whim of a landlord, who could increase rent, neglect, or even sell the home. You may have to move often, especially if your ultimate goal is to buy.
In contrast, when you buy a home, you start building equity the minute you move in. In addition, you benefit from any improvements you make to the home, as well as its natural appreciation. This leads to greater financial security and more money in your pocket.
Unfortunately, strict mortgage lending restrictions have made mortgages unavailable for many potential homeowners. This is especially true for those who are self-employed, who work on commission or seasonally, who have had a disruption in income or a change in credit due to divorce or unavoidable debt.
For people in those situations, a contract for deed (CD) can give them the option to buy a home, provided they meet certain criteria.
That’s the main benefit of a contract for deed: the ability to buy a home when a mortgage is out of the question. But there are many other advantages.
A More Secure Transitional Option
In a rent to own or right to purchase agreements, a buyer is not really a buyer, but a glorified tenant who may have an option to buy the home at some point. In a contract for deed, the county will usually recognize the CD homebuyer as a partial owner of the property. This makes it easier to convert the CD to a mortgage when the homebuyer is able to do so. (We recommend that all buyers check their county regulations to ensure that this is the case.)
Buy the Right Home for Your Family
The Slow Flip contract for deed allows buyers to purchase any home, instead of just looking at a small pool of houses. You can buy a home that is right for your family’s future – and stay there.
Although payments on a contract for deed are not reported to the credit bureaus, there are services homeowners can use to report payment information in order to improve their credit scores. In addition, they can use that extra time to build credit through other means. If credit is the reason that you’re unable to get a mortgage, a CD will give you the time and opportunity to rebuild it.
Many contracts for deed holders are able to deduct CD interest from their taxes. Homesteading the property also helps improve a homebuyer’s financial situation by lowering property taxes. (Make sure to verify any potential tax benefits with your accountant or tax attorney.)
No Mortgage Insurance
Because a contract for deed is not a mortgage, you will not have to pay mortgage insurance. This can amount to thousands in savings every year.
No Prepayment Penalty
There is no prepayment penalty with a Slow Flip contract for deed. Homebuyers are encouraged to qualify for a mortgage as soon as possible, which will pay off their CD and most likely lower their interest rate.
We package our modest price premium upfront and into the contract for deed, making it simple, clear, and usually very manageable.
Benefits for Realtors
The Slow Flip team is comprised of experienced real estate professionals who understand the industry and the challenges facing Realtors and their clients. Our contract for deed provides an additional option for your clients to purchase homes. Learn more about how we work with Realtors.
Are you interested in learning more about the Slow Flip contract for deed? Do you want to discuss your specific situation to learn whether a CD might be right for your family?
Contact us – we’re here to help!