What Does Contract for Deed Mean?

by | Jan 6, 2022 | Contract For Deed | 0 comments

First off; a deed is a legal document that transfers ownership of an asset from one to another. So what is a Contract for Deed?

The seller, Sarah, signed over her real estate to Jerry, the buyer, by deed. Jerry owns the real estate. 

Now let’s build on this. Sellers of course want money in exchange for real estate before the deed goes into effect. It may be unrealistic to assume Jerry has the means to purchase the real estate from Sarah outright. How can Jerry still obtain home ownership without having personal funds or a mortgage? 

By Contract for Deed. 

The contract portion of this term refers to the agreement between a buyer and seller in which the buyer makes payments directly to the seller over a period of time. Once payments have been satisfied according to the established terms of the contract, the deed is transferred.

Jerry made on-time regular payments to Sarah for the agreed upon time. Sarah followed through on the contract and Jerry now owns the real estate. 

Full circle. Congrats Jerry, you’re a homeowner. 

A couple important notes in regard to Contract for Deed: 

  • Though an individual may live in the home while making payments, the official property title doesn’t get transferred over until the contract has been met. 
  • In follow-up to the above point, the buyer does have “equitable interest” in the property as this is considered a sale of property. The seller pays income taxes on the sale and the buyer can deduct interest payments moving forward – just like you can deduct interest from mortgage payments with a bank.
  • The seller gets paid over time as the buyer makes monthly payment. This helps the seller spread out income over several years, and allows the buyer time to pay off the loan, refinance, or sell the home.
  • Once a contract for deed is in place, the buyer has equitable interest in the property and therefore now acts as the owner – responsible for property taxes, home insurance, repairs, and maintenance.

A fantastic option; Contract for Deed aligns with Home Equity Partner’s goal of making you a homeowner.

Want to know more about the process or how to apply? See the links below! 


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