If you're not familiar with the contract for deed house sale, it's also known as a land contract or land installment sale. You'll find minor variations to the contract for deed but generally it's an installment payment process where the seller holds the contract. With today's tough mortgage standards, the contract for deed is a good option for both the seller and the buyer.

A contract for deed enables the seller to obtain a better sales price and the buyer to become a homeowner when they can't qualify for a traditional mortgage. A draw back for the seller can be that it takes years to receive all of their money from the sale when they offer a contract for deed.

Contract for Deed - Structuring the Sale

Variations to contract for deed sales commonly occur in the terms and conditions of the contract. Rather than the boilerplate contract used by traditional lenders, almost anything can go into a contract for deed.

The area of most interest to both seller and buyer is usually if and when a balloon payment becomes due. If the property is an investment property, the seller may offer to carry the contract for deed until the full purchase price is paid in 20 or 30 years. However, most sellers want their money sooner than that. A contract for deed may require the buyer to find alternative financing in as little as 2 years or it may be 10 years. Most contract for deed arrangements fall somewhere in between.

Circumstances of the buyer often have to be taken into account when determining the balloon payment of the contract for deed. If the buyer has a bankruptcy, the soonest they are likely to qualify for a traditional loan is not for at least seven years. Same thing for a foreclosure. However, a short sale might qualify in as little as two years.

Another issue of high interest to both the seller and buyer in a contract for deed is the interest rate. The seller is entitled to a higher interest rate than a traditional lender offers. With risk, comes reward. Buyers should expect to pay 8% and up as interest, although traditional rates are hovering at historical lows around 4%. This relatively high interest rate is something that can entice sellers to set the balloon payment farther in the future, so they collect the high interest rate for more time.

Contract for Deed - It's All in How the Contract is Written

Contract for deed arrangements favor the seller more than the buyer. As holder of the first mortgage, the seller retains the right to foreclose on the property if the buyer defaults. Unless the buyer completes the full terms of the contract they risk losing the property.

One thing the buyer is smart to insist be included in the contract is the requirement that the seller signed deed be held in escrow by a third party. This allows the deed to be recorded with the county in the event the seller cannot be found when the buyer completes their contract obligations. Also, the original deed for contract should be recorded with the county to put the world on notice that the buyer has an equity interest in the property.

An important clause for the seller to have included in the contract for deed is what happens if the buyer cannot obtain traditional financing when the balloon payment comes due. Laws vary from state to state but it can be difficult or impossible to foreclose on a buyer that is current with their payments but can't obtain a new loan required by the contract for deed. Besides, for most ethical investors, doing so would be morally wrong. The way most contract for deeds handle this is with a payment escalation clause. The interest rate can go up. Or the length on the mortgage can be shortened from 20 years to 15. Something changes when the balloon payment is missed to cause the buyer to pay more and motivate them to find traditional financing.

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If your credit is damaged or you have been turned down for a conventional loan, the Rent 2 Own program could be just what you need. Many people would love to buy a home today while prices are super low. Unfortunately, the banks are being extraordinarily tight about loaning money.

If you've had financial trouble that damaged your credit score, rent 2 own is still possible once the financial problem is behind you. The Rent 2 Own Program can be a win-win for the buyer and the seller.

Rent 2 Own is the Seller's Option in A Buyer's Market

Rent 2 own is the program sellers are turning to because they can't sell their property in today' very slow market. Homes sit on the market for 90 or 120 days without an interested buyer making an offer. It's definitely a buyers' market and you should take advantage while prices remain down. Prices will go up, they always do.

Landlords and real estate investors are more sophisticate when it comes to understanding what it takes to succeed in this down market. They have come to understand that offering seller financing through the Rent 2 Own Program dramatically increases their chances of selling the property. When buyers can't get financing, the way landlords and investors sell properties is by offering seller financing, affectionately known as the Rent 2 Own Program.

Rent 2 Own Get's Buyer's the Home They Want While Prices are Low

As the buyer, you have the option to buy at any time up to a predetermined date through the Rent 2 Own Program. You can rent the house for a month, six months, or two years. You have a set price you can buy for up until the date your option to buy expires. With the rent 2 Own Program, the buyer is in control. You set the purchase price today with an option to buy in the future. If the house value rises, you'd be well advised to exercise your option. If the market value of the house decreases, you're not locked into buying. As the Rent 2 Own buyer, you have all the upside and none of the downside.

Rent 2 Own Program has many benefits for the buyer:

• Full control of the home. You can learn if there are maintenance issues or if your family is a good fit with the home before fully committing to buy.
• The buyer is able to live in the neighborhood to see if they like it without committing to staying there long term through the Rent 2 Own Program.
• The Rent 2 Own Program can be your ticket to getting your children into a better school district.
• Credit problems and difficulty documenting income are not obstacles to owning a home with the Rent 2 Own Program.
• Grow equity in the house before you buy it. Often, a portion of the rent payment is credited towards the down payment or equity in the home when you exercise the option.

It's a win-win because the seller benefits as well:

• The seller has a tenant with a vested interest in keeping the property in good repair.
• The seller has rental income to cover the mortgage and maybe a little more through the Rent 2 Own Program.
• Opening to a market of buyers with less than stellar credit dramatically increases the number of possible buyers.

Both buyers and sellers can make lemonade out of this difficult real estate market with the Rent 2 Own Program.

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