Home Equity Partner has a lot to say about the advantages and disadvantages of Contract For Deed. Here are the biggest advantages and disadvantages when considering a Contract For Deed on your next home.
Advantages of Contract for Deeds: Easier and ready to move into homes!
The top advantage of Contract For Deed homes would be the ease of getting into the home. This key point might seem simple but it is often overlooked. Since you are entering an agreement with the seller, there are far fewer rules or regulations that need to be met. This coupled with most Contract For Deed homes are usually ready right now, make them an attractive offer for would-be home shoppers who just can’t quite yet get a bank loan.
The condition of the home is also a big factor. If you buy a home with a bank there may be FHA or bank conditionally requirements. These do not exist with a Contract for Deed home (although you should always have an inspection done on a home prior to moving in).
This advantage disappears if you purchase the home through a traditional bank loan. FHA loans have strict rules regarding the living conditions of the house. This doesn’t mean that junk won’t be left or yard work being up to date. Many FHA homes are not “move-in” ready when you’re ready.
Move-in-ready homes without getting a bank loan can make a contract for deed a very attractive offer.
Disadvantage of Contract for Deeds: More costs upfront
The biggest point that is often viewed as that a contract for deed is often more expensive compared to bank financing (such as FHA).. This may be in the form of higher monthly payments, or a higher down payment. Although you have the ability to negotiate interest rate and down payment, most sellers are looking for close to 10% down and charge a higher than normal interest rate for the convenience of the contract for deed.
That being said, a contract for deed provides you with opportunities that you may not otherwise have. You can get into a home NOW instead of waiting while your credit score goes up or your small business grows. You may also be paying more to save up for a downpayment for a traditional loan. These larger payments also take into account the risk that the seller is taking.
A Contract for Deed still requires a sizable downpayment and higher monthly costs. This varies depending on the home and your specific situation. Contract for Deeds are difficult to compare to renting since you are looking to purchase as an asset.
The small increase in costs is oftentimes worth getting out of a rental. Each person/family gets to make that decision on their own. While some people see the costs as too much of a disadvantage it might not be for you. Everyone’s situation is different and Home Equity Partner might be right for you.