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Contract for Deed

A contract for deed is an agreement between a buyer and seller of land in which the seller finances the buyer’s purchase. full description

Uses

  • Purchasing a piece of property from a seller willing to finance it
  • Selling a piece of property to someone and allowing them to take possession of the property before they have paid in full.

Overview

Purchasing real estate can be very difficult, especially for people who have little or no access to traditional financing options. A contract for deed is an agreement between a buyer and seller of a piece of land in which the seller finances the buyer’s purchase, allowing the buyer to take possession of the land even before he has fully paid for it.

Under a traditional mortgage arrangement, a buyer borrows money from a bank that holds title to the property until the buyer has paid back the loan. In this case, the buyer is allowed to take possession of the property before paying for it in full, but the seller is not at risk. Because the seller gets her money from the bank before turning over possession, she won’t be stuck holding the bag if the purchaser is unable to make monthly payments.

In a contract deed arrangement, the seller plays the role of the bank. The seller allows the buyer to move into the property and make payments until the purchase price has been paid off. This arrangement can be difficult to come by, as sellers are usually not willing to take on the risk of the buyer’s default. However, when they are available, a contract deed can be a great pathway to home ownership for individuals who do not wish to take out a traditional mortgage.

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