We are familiar of the mortgage loan as a way to finance and purchase a property. Although this is commonly used by homebuyers, there are those who use the contract for deed instead. This is an alternative used by those who could not afford to make the down payment. Those who have bad credit will also find this helpful. But how does this work? Is it similar with mortgage? Who benefits from this?
Understanding the Contract for Deed:
The contract for deed is an arrangement between a seller and a buyer. The arrangement indicates that the buyer agrees to purchase the house and will start paying the seller at a designated date. The schedule of the next payments will also be indicated in the document signed by the two parties. This may seem like a typical home purchase, but the buyer will not have the title of the property until the he makes the final payment.
What makes it different from mortgage?
Although this may look the same with mortgage, they are two different things. There are things needed in a mortgage loan that is not necessary in a contract for deed. For instance, credit check for the former is a tedious process, while the latter is more lenient and in some cases, not required. There is also a huge difference in terms of the down payment. Lenders in a mortgage loan may require as high as 20% down payment. The amount required by the contract for deed is significantly lower.
In a mortgage loan, the title will be given to the homebuyer as soon as the down payment is paid. This is not the case for the second option. Although the buyer is also allowed to occupy the property and live in it as if he already owns the property.
What are the advantages and disadvantages of the Contract for Deed?
There are several benefits of this arrangement. One is that it gives someone an opportunity to own a home in a cheaper and simpler way. The steps that the buyer goes through are less complex. He does not have to worry if his credit score is low or that he can only make a 5% down payment.
The steps maybe easier but the risk is greater. Since the buyer does not hold the title on the property, he could still lose it any time. The seller can evict him right away if he misses a couple of payments. Id the seller purchased the home through a mortgage and the seller misses several payments, the lender can foreclose the property even if the buyer is on time with his payments.
Before you agree to the contract for deed, weigh your other options first. Although this arrangement can help you own a home, this can also be very risky. If you want to engage in this kind of arrangement, make sure that you can trust the seller. Check his background. Investigate first. It is best to ทาวน์โฮมมือสอง ราคาถูก know who you are dealing with than be sorry in the end.
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