Buying A Home
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Our tech team has launched updates to The Nest today. As a result of these updates, members of the Nest Community will need to change their password in order to continue participating in the community. In addition, The Nest community member's avatars will be replaced with generic default avatars. If you wish to revert to your original avatar, you will need to re-upload it via The Nest.
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Thank you.
Note: This only affects The Nest's community members and will not affect members on The Bump or The Knot.
Contract for deed?
FYI - I searched through all of the board posts at a high level and didn't see anything related to this.
Has anyone ever done a contract for deed as the seller? Going one step further, has anyone done this and had it fully execute - where the balloon payment is paid and the property is fully transferred?
We have been approached about this. In my state, this seems to be a bit more common to have a CFD than it may be in other states. I've done a little bit of research, but that seems to be mainly geared toward pros and cons for buyers. So far, for the seller I've seen the cons as being:
- Current mortgage may prevent a CFD from happening due to language about owing the balance due upon a sale. (I haven't looked into this with our mortgage yet since this just came up last night).
- If the buyer defaults, we could be in a situation where our house has depreciated below the negotiated sale value
- A risk that I didn't see listed in any articles is that if we buy a house in the meantime (which we would) and the buyer of the CFD defaults or wants to back out, we would then be responsible for 2 mortgages.
Anyone have any insight on a situation like this?
Re: Contract for deed?
I do not have any experience in working Contract for Deed transactions, but for some reason, a giant red flag always shoots up in my mind. Maybe it is the cynical nature of business and purchasing these days, but if I had in my mind to sell my house to someone with traditional, third party financing, I would not owner finance.
Here are a couple reasons I feel strongly about it:
1. Here are the questions that immediately come in my mind when I hear about CFD/Seller Financing. Why do the buyers want seller financing? Can they not afford the house? Do they have a terrible credit history?
2. When I sell my house, I want to be done with it! I want cash in the bank, and I want the transaction to be completed. A CFD ensures you are invested in that house for the long haul.
3. Rates are crazy low. Why wouldn't they approach a financial institution if they are as fiscally responsible as they are telling me they are? Don't they know the Bank of Chris is much more expensive?!
Basically, I feel I would need to be 100%, completely comfortable with the buyers and their intent to pay. Personally, I do not think the pros are even close to balancing out the cons. Even if they have pristene credit, five years from now, when the worst case scenario happens and they lose their high-paying jobs, get out your mop because you'll be the one responsible for cleaning up a mess at a house you sold five years before!
Personally, I don't think I would ever feel comfortable in a CFD situation, but as you said, your area is more CFD prone than most. I would just make sure I'm wholly comfortable before getting involved.
Best of luck!
Do you or your realtor know anyone who has sold this way? We were approached as well to do owner financing when selling and there is no way I'd touch that with a 10 foot pole. They buyers have something wrong that they can't get traditional bank financing such as not enough employment time, horrible credit, etc. I'm a CPA and didn't want to have to deal with the tax consequence (interest income on the mortgage) what if the buyer defaults and then you have to foreclose and possibly fix up the house because they've damaged it? Also, I was concerned about holding 2 mortgages at one.
However, a friend (who is very well off and in his mid-40's) is doing something similar. The buyers of his property just moved to the area and are starting up their own business so they couldn't get bank financing. They did give him a large deposit and are paying monthly. In their contract, they have so many years to get bank approved financing. So that is something to consider if you want to go that way. That you won't necessarily go 15-30 years holding the property as collateral but that they have 3-5 years to secure bank financing? It's an option to look into if you are seriously considering this. I would involve a good CPA and a good realestate lawyer to look over the contracts and help you figure it all out. Mortgage rates are now in the 4%'s ... you'd have to pull their credit, verify employment, etc and then figure out what rate you and the buyers can agree upon. Is it 7% or higher like 10+%? Also, I believe some states have laws on how much of an interest rate can be charged on certain things but I have no idea if this would apply to owner financed home sale (I know our state tried to pass something to reduce the interest rate of those payday loan places but have no idea if it passed or if it applies to other things.)