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jfpieron · Aug 5, 2009, 02:49 PM

I am considering doing a contract for deed on a home I want to purchase. I need the next year or 2 to get my credit back in shape, hence the contract for deed. I am also not wanting to have to come up with a hefty down payment as the seller has agreed to take a $2000.00 down payment to get me into the house.

My question is when the contract for deed expires in 2 years and I have to obtain financing through a lender, can it be treated as a refinance so I do not have to have a down payment?

The home asking price is $330,000 and it has appraised at $344,000

Thanks!

J

ScottGem · Aug 5, 2009, 03:35 PM

In a contract for deed, what you pay during the contract, should be going towards the purchase price of the property. Therefore, when you go for financing, You will sort of have equity in the property that can mitigate the need for a down payment.

jfpieron · Aug 5, 2009, 03:45 PM

Originally Posted by ScottGem

In a contract for deed, what you pay during the contract, should be going towards the purchase price of the property. Therefore, when you go for financing, You will sort of have equity in the property that can mitigate the need for a down payment.

Scott,

Thanks for the answer! Can the financing , when obtained, be treated as a refi or does it get looked upon as a new loan for a mortgage?

ScottGem · Aug 5, 2009, 03:59 PM

No, its still a new loan since you have not had a mortgage before.

jfpieron · Aug 5, 2009, 04:09 PM

Originally Posted by ScottGem

No, its still a new loan since you have not had a mortgage before.

And then the monies that have gone toward the purchase are applied as the down payment? What if it is a minimal amount, then will I be required to come up with an additional down payment? I always thought it was treated as a refi since the deed for contract is an actual sale

ScottGem · Aug 5, 2009, 04:35 PM

But the contract for deed is NOT an actual sale. The sale does not complete until the terms of the contract are satisfied. You will not own the house until then. So getting a mortgage at that point is almost like getting one for a new sale. The only difference is that the lender may accept that you have equity and accept a lower down payment or no down payment at all.

The idea of a down payment on a house is that the lender wants to insure that they can recover the amount they loan in case of default. So, the bigger the difference between the loan amount and the appraised value the better the lender likes it.

jfpieron · Aug 5, 2009, 04:38 PM

Originally Posted by ScottGem

But the contract for deed is NOT an actual sale. The sale does not complete until the terms of the contract are satisfied. You will not own the house until then. So getting a mortgage at that point is almost like getting one for a new sale. The only difference is that the lender may accept that you have equity and accept a lower down payment or no down payment at all.

The idea of a down payment on a house is that the lender wants to insure that they can recover the amount they loan in case of default. So, the bigger the difference between the loan amount and the appraised value the better the lender likes it.

Gotcha. Great info. Thanks for the responses and time.

Fr_Chuck · Aug 5, 2009, 07:54 PM

Also remember if you are one day late often ( or what every time frame your contract has) it changes from a purchase to a rental and any money paid as down is lost.

Also if your contract ends on June 1st, you have to have the loan done and the person paid by June 1st, so a 2 year loan only really gives you about 18 to 20 months before you have to start finding finance.

And the contract for deed is not reported to the credit bureau so it does not help build your credit.

You really need to look at a 5 or 10 year contract for deed to get credit better and have a lower loan needed.

Most sellers on contract for deeds expect or may want you to fail, so they can resale the same house over and over.

My uncle had one house I bet he sold at least 10 times.