The Contract for Deed – A Great Way to Buy a Home

In today’s real estate market it can be both difficult to either buy or sell a home.  Contract for deed sales seems to be what more and more real estate investors are looking into.  Remember: As a buyer or seller of a real estate notes, check whether the contract you are agreeing to is to your benefit and well written.  Unorganized contracts can cause us a great deal of problems in years ahead, especially if you ever plan cash out that real estate note.  That is why it is imperative that both buyer and seller read all clauses in the contract for deed and to be positive that everyone understands all details.  It is often even recommended by private real estate investors that you get your contract reviewed by a good real estate attorney.

Just what is a Contract for Deed?

In Texas, or nationwide, a contract for deed assists the buyer in saving money when purchasing a home, money they can draw on for expenses resulting from the real estate purchase.  Under this contract, the seller retains ownership of the property until the buyer fulfills all his obligations, then the title is transferred to the buyer.  To explain it in laymans terms the owner will keep the deed, and do all the financing himself.  The title becomes the buyer's and the deed is registered once payment occurs and all conditions are met.

The buyer is usually permitted to offer a lesser amount for a down payment on a home with a real estate note.  This implies that buyers wanting to purchase a home do not have to have too much capital.

What becomes of monthly payments derived from a real estate note? The Texas contract for deed has it's benefits at first, but draw backs will surface later to balance its attraction, as is true in other states as well.  It means that there is usually a higher interest rate on the principal, and the monthly payments will tend to be high, especially if the contract is written for a short amount of time.   It is this reason because of which the buyer has to have enough cash flow for being able to pay the monthly payments.

Benefits to the Seller: The advantages to those placing your notes for sale are numorous.

First it is easier to sell the home in these difficult times.  Another aspect to this is that allows the seller to instead of just reporting one year of capital gains it allows for the whole period of the contract.   Taking advantage of this will give the seller several tax credits.

If you are looking for a large sume of money at closing it is highly unlikely you will get it with this type of sale.  This sale may not be right for you if the tax saving is not as important as the large down payment.

At times, there may only be one option for a person to buy a home or for a buyer to sell a home - the contract for deed.  So both the parties can get benefited by this.  Be certain that the agreement is sound and both the parties have benefits in it.