home financing

Student Debt and Housing

Buying A House with Student Loan Debt

1000 500 Sam Radbil

Some positive things have occurred that can make buying a house with student loan debt a little easier:

  • Fannie Mae has programs that offer three percent down-payments.
  • If your parents pay your loan, it may not be counted in your debt/income ratio.
  • The one percent rule–where one percent of your student loans were divided by 12 and counted against your income—has been rescinded.

These are great steps, but it still doesn’t solve the problem for people in debt. Student loan debt is at record levels:

Student Loan Debt

Student loan defaults are even worse:

Student Loan Defaults

So even though the government and banks are realizing that massive student loan debt could be the next bubble, there is no easy way out. Because of the 2009 meltdown, lending standards are still stringent, and many student loan debtors just cannot achieve less than the required 43 percent debt-to-income ratio. As Dan Rafter has reported, “While student-loan debt does affect the mortgage-lending process, it boils down to three factors: income, savings and credit; your mortgage professional will look at those three variables to determine what loan you qualify for, if any.”

What To Do Now?

Besides learning how to make money online fast, what else can you do? A graduating law student can easily amass over $200,000 in accumulated student loan debt. A graduating physician can have even more, and these large obligations can wreak debt-to-income ratio havoc. Many pundits actually believe that today’s student loan debtors will continue to have great difficulty qualifying for mortgages, and this will lead to lower housing prices since the demand will not exist. Look at these telling stats:

Homeowners By 30

What Are The Alternatives?

The trends are clear: students have ever-increasing debt loads and even though banks may now be a bit more lenient, traditional mortgage financing may not be possible as iffy credit is often seen as bad credit by lenders. If you have large student loan obligations and are ready to buy a home, but can’t qualify for conventional financing, a MN contract for deed may be the answer.

Contract for Deed – What’s That?

Rocket Lawyer tells us:

“Under a Contract for Deed, the buyer makes regular payments to the seller until the amount owed is paid in full or the buyer finds another means to pay off the balance. The seller retains legal title to the property until the balance is paid; the buyer gets legal title to the property once the final payment is made. If the buyer defaults on the payments, the seller can repossess the property. In some states, a seller who repossesses a property must reimburse the buyer for the fair value of improvements to the house, as well as a reasonable amount for rent.

Contracts for deeds are valid options, and even the primary option for seller financing in most states. The process typically starts as a negotiation between the buyer and seller. Generally, stock and boilerplate terms cannot apply. The average length of a Contract for Deed is five years, but it can be for any amount of time that the buyer and seller agree on. Interest rates on a Contract for Deed are not regulated, so they can be as high or as low as the buyer and seller can agree on. Similarly, the payments can be structured in any fashion that is agreeable to both parties. In some cases, the value of the house may be divided into equal payments so that the full balance is paid off by the end of the term. In others, regular payments are set up with the balance coming due in a balloon payment at the end of the term. Typically, these contracts can be renegotiated so long as both parties are willing.”

How Do I Get Contract for Deed Financing in Minnesota?

  • Find homes that are for sale by owner.
  • Locate a real estate professional to help you find contract for deed deals.
  • Find homes where sellers offer financing.
  • Work with a company that makes contract for deed deals happen for those with bad credit.

As you search online, you’ll find that contract for deed (C4D) is accepted and embraced more times in Minnesota than in almost any other state. In fact, C4D financing is many times the preferred method of Minnesota bad credit financing.

You will also discover many articles that warn about contract for deed issues, problems, and consequences. As with any form of home financing, it’s important to have your legal and financial team ready to review all financing proposals that are presented to you. You might also consider working with reputable companies like C4D that make it their business to provide solid, transparent and win-win loan alternatives—even if you are loaded with student debt.

 

Contract for Deed Scams

Contract For Deed Homes: Scams & Abuses

1000 500 Sam Radbil

Contract for deed is a popular alternative home financing method that is recognized by most states. Contract for Deed homes can be found in a number of different ways, but it’s important to use professional help when seeking this type of financing for your home, because scams happen and create terrible financial situations for a buyer.

What Is Recognized Where?

Contract for Deed Housing

 

When used correctly, it can mean eventual home-ownership for many persons that, for various reasons, like bad credit, cannot qualify for traditional mortgage loans. Unfortunately, some financial advisors do not recommend contract for deed in Minnesota because of various scams and schemes that employ the financing tool to defraud unwary consumers.

What Can Go Wrong

Steve had owned a business for years, but the 2009 recession hit him hard, and his business closed. Steve was personally left with significant debts, tax liens, and open judgments. He also lost his home to foreclosure, and was only able to rent a place to live with the aid of a co-signer. After a few years, Steve was able to regain his financial footing and wanted to purchase a home but his damaged credit prevented him from getting a traditional mortgage.

One day he stumbled upon a listing for a nice home in a great area that was offered for sale by owner. Steve and the owner came to a quick agreement upon price, and the seller offered Steve a contract for deed. The deal looked like this:

  • Purchase price – $200,000
  • Down payment – $10,000
  • $190,000 financed for 30 years at 6.5 percent.

Even though the interest rate was a little high, Steve liked the deal. The seller explained that while the deed would remain with him, he would transfer it to Steve after all payments were made. Steve also had the right to prepay with no penalty.

The seller offered to have his attorney do the paperwork, and since Steve considered himself legally savvy, he read every line of every document and then signed the deal. Things were great for three years, but then Steve had a visit from a banker he didn’t know.

What Happened Next

The seller had neglected to tell Steve that the property was already encumbered by a first mortgage. For the first three years, the seller used Steve’s payments to handle that mortgage, but when the seller was fired from his job, he quit making mortgage payments and used Steve’s payments to live on. After the mortgage went 90 days delinquent, the bank foreclosed, and even though the process took a while, Steve was forced to move. While in this case, the seller did not intend to defraud Steve, the end result was still a disaster, and Steve had to find a new place for his family to live.

Contract for Deed Homes Nationwide

Contract for deed is popular in all parts of the country. A recent Bloomberg article said:

“Eight years after subprime mortgages all but disappeared, U.S. buyers with bad credit can still own homes. If they come up with a nominal down payment and stay current on their monthly bills, they’ll get title to the property — after as long as 30 years. If they miss one payment, their contracts say they could lose all their money and get tossed out.”

The deals often end badly for low-income buyers.

This chart shows the extent of contract for deed usage in Atlanta, Georgia:

C4D Atlanta

Sources: 2010–14 U.S. Census American Community Survey, staff calculations based on 2013 CoreLogic tax data.

What Unscrupulous Companies Do

Two kinds of predatory contract for deed deals are prevalent today. The first one occurs when large companies buy foreclosed and unoccupied homes for pennies on the dollar. They then offer them for sale at inflated prices to persons that cannot qualify for conventional financing. Unlike Steve’s home, the sellers actually own the property free and clear of all encumbrances, but the homes are in bad condition and/or the monthly payments are structured to be extremely high. The sellers want the buyer to default so that they can quickly evict the delinquent tenant and repeat the process with new buyers.

Housing Scam

The second scam works this way:

  • Minnesota homeowner is behind on payments.
  • Has a balance of $100,000 due on a $175,000 original mortgage.
  • Buyer offers to “take care” of the mortgage issue.
  • Pays off the mortgage balance and takes possession of deed.
  • Resells home to original owner for $200,000.
  • Original owner gets a MN contract for deed home for $200,000.
  • Buyer essentially has stripped the equity from the home.

Is This Avoidable?

Interestingly, while the two examples above may be unethical, that are not illegal. Does this mean you should not consider for sale by owner homes MN with contract for deed financing? No, because there are reputable companies like C4D that strive to make the contract for deed process transparent, advantageous to both sides, and legal. Remember, it is always good to acquire legal advice before entering into a contract for deed.

contract for deed faq realtor

2018 Realtor FAQs: Contract For Deed In Minnesota

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Real estate continues its recovery, but there are still those that do not qualify for traditional bank financing, and while Minnesota contract for deed can be a great alternative, brokers do have a lot of questions.

With that in mind, we decided to put together a list of Realtor contract for deed FAQs to help all brokers navigate the buying process when using the contract for deed financing method.

Realtor FAQs Contract for Deed

What is a contract for deed?

A Contract for Deed is a tool that can allow buyers who either don’t qualify for traditional lending options or who want a faster financing option to purchase property.

“Under a Contract for Deed, the buyer makes regular payments to the seller until the amount owed is paid in full or the buyer finds another means to pay off the balance. The seller retains legal title to the property until the balance is paid; the buyer gets legal title to the property once the final payment is made. If the buyer defaults on the payments, the seller can repossess the property. In some states, a seller who repossesses a property must reimburse the buyer for the fair value of improvements to the house, as well as a reasonable amount for rent.” via rocketlawyer.com

Why present a MN contract for deed to my clients?

Contract for deed can work when you have clients that cannot qualify for conventional mortgage financing. This can happen because of:

  • Job loss.
  • Bad credit.
  • High debt/income ratios.
  • Small business ownership.
  • Non-provable income.
  • Previous BK.
  • Previous foreclosure.
  • No credit history.
  • Unfriendly loan officers.
  • Immigration issues.
  • Tight lending environments.

How do I find sellers that want contract for deed financing?

A Google search will locate some of these—try Googling “homes for sale by owner mn”– but there are companies that will buy a property and then sell it to your client.

Realtor FAQ Contract for Deed in Minnesota

OK, my client found a seller? What do I do now?

If the seller is represented by a broker, contact that broker. You will want to protect your buyer by doing a title search. The seller should draft the actual contract for deed, and the buyer—that you represent—should retain an attorney that will read, comment and possibly suggest contact for deed revisions to better reflect the buyer’s interests.  Once the seller and buyer agree on a contract for deed and its terms, you can schedule a closing. The buyer’s attorney can assist with this. If the seller is not represented by a broker, you may have to further assist with the mechanics of the sale, and it is then imperative that the Minnesota buyer retains a competent attorney.

My client found the perfect home, but can’t get financing. The seller won’t do a contract for deed. Is my deal dead?

This is a case where a company like C4D can help. Simply, C4D–of course after it completes its due diligence–can offer to buy the home from the seller. Then C4D can sell the home to your buyer with a Minnesota contract for deed. Follow these simple steps:

  • Locate the property.
  • Contact C4D.
  • Assist your client with the C4D application process.
  • If the deal is approved, closing can occur quickly.

What happens next?

You are paid your commission, your buyer moves in, and at the completion of the contract your buyer becomes a homeowner.

Who actually owns the home in the meantime?

As in all contract for deed sales, C4D, the owner, retains the deed until all payments have been made.

Who are the people at C4D? Are they wealthy investors or what? Where do they get cash to buy all of these homes?

C4D works with its own set of preferred lenders to finance contract for deed sales.

What makes C4D different? How do they work around things like due on sale clauses?

C4D’s lenders know and trust C4D, so the company’s lenders do not require due on sale clauses in any of their C4D loans.

As you can see, C4D is dedicated to help people make the transition from tenants to homeowners through the contract for deed process. Sure, traditional mortgages are great, but if you have a client that has problems qualifying, call C4D today!

Contract For Deed: The Pros and Cons

1000 500 Sam Radbil

In some states, especially Minnesota, contract for deed is a popular alternative to a traditional mortgage. What is contract for deed? It is a type of seller financing where monthly payments are made to the seller over a prescribed time period. Unlike a traditional mortgage, however, the property deed remains with the seller, and while the buyer occupies the property, the buyer will not actually own the premises until all payments have been made.

Why Do a Contract for Deed in Minnesota?

Contract for deed is often used when the buyer cannot qualify for a traditional bank mortgage. This problem can occur for many reasons including:

  • Bad credit.
  • Non-provable income.
  • Business ownership.
  • Divorce.
  • Prior bankruptcy.
  • Tax liens.
  • Court cases.
  • Tight lending standards.
  • Appraisal issues.
  • Previous foreclosure.
  • High student loan debt.
  • Job loss.
  • Illness.
  • No credit history.

Minnesota home buyers with any of the above issues may find that contract for deed financing is a nice solution.

The Advantages to Contract for Deed

The advantages of contract for deed in Minnesota include:

  • No bank scrutiny.
  • More flexible terms.
  • Personalized interaction with the property owner.
  • Bad credit is not necessarily a problem.
  • Quicker turnaround time.
  • Appraisals may not be necessary.
  • Property improvements can be made.
  • There are ownership tax benefits for the buyer.
  • MN contract for deed is a great way to build credit.
  • No pre-payment penalties.

The Disadvantages

Some disadvantages of a contact for deed in MN could be:

  • More rapid foreclosure parameters.
  • Unethical sellers could offer a contract for deed on an encumbered property.
  • Higher interest rates.
  • Title stays with the seller until paid in full.

Is Contract for Deed for You?

Redfin says that nationwide housing sales are still strong:

Redfin Housing Market

Mortgage lending requirements have somewhat loosened, more buyers can now qualify, and rates are low:

Fixed Mortgage Rates

Still, if you have injured credit, you may not be able to qualify for a traditional loan, and, if you are renting, your monthly payment goes directly to your landlord with no benefit for you. This is where a contract for deed arrangement can really be an excellent benefit.

Look at this comment from the Minnesota Home Ownership Center:

“The use of contracts for deed to buy a home is on the rise. The foreclosure crisis has resulted in tighter loan underwriting standards, leading to fewer qualified buyers. At the same time, an increase in bank foreclosures means more homes are for sale at reduced prices. Investors often purchase these homes for cash and then offer them for sale using a contract for deed. Since contract for deed agreements take place without the underwriting criteria set by conventional lenders such as FHA, they are attractive to buyers that are not able to meet these restrictive requirements. Contract for deed agreements are attractive to home sellers because they open up the market to more buyers who, for a number of reasons, cannot find a mortgage-ready buyer to purchase the property.”

And while banks like to pigeonhole prospective buyers like this (image below), you will find a lot more flexibility with a Minnesota contract for deed transaction.

A Lot to Consider

We’ve shown that contract for deed financing can be a good alternative to traditional mortgages especially if you have credit issues. Of course, due diligence is very important, and you want to make sure that your seller legitimately desires to make the contact work for both of you. The Atlanta Legal Aid Society advises, “The key to making these agreements work is to go into them with your eyes open to all the possibilities, to make payments on time, and to work on repairing your credit to the point where you’ll qualify for more traditional financing.”

C4D

A company like C4D is a great place to start; their unique approach allows you to bring your dream home to them, they actually purchase it, and then they sell it to you. And if you want us to help you find a home, that works, too. We have a team of realtors ready to get the search started for you. These transactions are legal, regulated and fair, and even your real estate broker’s commissions are protected.

If you’ve found your home, congratulations! If you have it financed, that’s great, but if you are turned down by the bank, don’t give up—contact C4D.

Minnesota Home Owner

Contract For Deed: Homebuyer’s Guide

1024 683 Sam Radbil

The Minnesota contract for deed process has been outlined succinctly below by the Greater Minnesota Housing Fund:

A contract for deed is an alternative financing agreement in which the seller finances the sale of the property rather than a lender. As with traditional forms of financing, the buyer takes possession of the home after the closing of the sale. When buying a home through a contract for deed, the home-buyer agrees to pay the seller the purchase price over time with interest in monthly installments.

Minnesota Contract For Deed For Homeowners

Who Typically Utilizes the Minnesota Contract for Deed Option?

Minnesota Realtors report that a substantial number of consumers that have been turned down for conventional mortgages consider contract for deed financing. Many hard-working individuals face credit issues at times, and contract for deed homes in Minnesota can be a great way to overcome mortgage financing problems like:

  • Bankruptcy
  • New job
  • Divorce
  • Non-provable income
  • 1099 income
  • Small business income
  • Gig economy income
  • Barter income

Minnesota Contract For Deed: How It Actually Works

The contract for deed process is an installment sale. With a reasonable and sometimes smaller down payment, a home-buyer can purchase a home without the intense credit scrutiny normally experienced with traditional mortgage financing. The owner of the home is the seller, and that owner finances the sale. The buyer immediately takes possession of the property, but the deed remains with the seller until all payments have been made.

What Can Derail Conventional Mortgages?

Since the Great Recession of 2009, requirements to obtain conventional mortgage loans have been seriously tightened as anyone that has applied for a loan can readily attest. Any Minnesota Realtor can recite horror stories of good people with decent credit that were arbitrarily turned down at the bank. One even mentioned a client that had $1,000,000 in cash in the bank, had recently retired, had great credit, but was denied a loan because of a poor income to loan ratio! If millionaires can have problems obtaining financing, imagine the problems regular working home-buyers could face.

Minnesota Contract for Deed Advantages to Homebuyers

A great article by Alex Everest lists the following advantages to a contract for deed deal:

  • You can now buy your home – an unfriendly bank will not be a problem.
  • It’s easier to qualify – contract for deed sellers understand credit issues.
  • No lender fees – those “junk” closing costs simply do not exist in contract for deed transactions.
  • Quick closing – you can move as fast as you and the seller desire.
  • Tax benefits – you are treated like the owner by taxing authorities.
  • You can improve the property – you don’t need a landlord’s permission to remodel.
  • You have a chance to rebuild credit – you can have your lender report your payments to the credit bureaus.
  • You have the right to pre-pay – there are usually no pre-payment penalties.
  • You will gain from property appreciation – you can build equity.

Possible Issues

  • You don’t get title to the property until you have paid for it – you don’t “own” the home until you have paid for it in full.
  • If you become delinquent, the foreclosure process can be quick – this process could take only 60 days.
  • Your seller does not perform his/her obligations to his/her bank – the property may have an existing mortgage, and the seller, instead of using your payment to make his/hers, defaults on that mortgage.
  • The property is encumbered – if you don’t do a title search you may be subject to mechanic’s liens, etc.
    Your transaction has breached the seller’s “due on sale” mortgage clause.

We Are Different and We Can Help

We’re not going to lie to anyone that is looking for a Minnesota contract for deed, as we have seen significant instances of fraud and abuse. Sometimes an individual seller designs a contract with high monthly payments that is destined to fail . Unwary buyers can be saddled with a fixer-upper that has many more problems than anticipated. We have even witnessed predatory sellers that look for vulnerable and uneducated buyers in order to extract a few high payments; they eventually foreclose and then repeat the process. That is not what we do here, however.

Our Process

Normally, if you are interested in a contract for deed, a Minnesota Realtor will show you the homes listed with contract for deed financing as an option. What we do is different. If you find your dream home but cannot get conventional financing, C4D buys if for you. Then we own the home, we gain clear title to it, and we sell it to you. You get to pick the exact home you want.

Yes, of course we finance our purchase, but we accomplish that with our bank, and our bank requires no due on sale clause. They know exactly what we are doing, and in fact they protect you—the buyer–as a proper title search is completed. We are an established business and we make money by having deals succeed and culminate in your free and clear home ownership. We facilitate this process and do everything we can to ensure that the financing structure will work for you as well as for us. You are not dealing with an unknown sketchy owner you found on a home loans for bad credit site.

Apply Conventionally First

We encourage you to apply for conventional financing before you come to us. If that doesn’t work, however, inform your Minnesota Realtor that you are taking the deal to C4D. Of course you will have to fill out an application, and have a down payment—though in certain circumstances we can even help with that. Remember to assure your Realtor that we protect their commissions.

We’ll quickly analyze your situation; our goal is to work out a deal that benefits both parties and puts you on the path to home ownership. The Motley Fool gave us this great chart that shows what happens when you pay off your home instead of paying rent:

Home Price vs. DebtImage source: strawhomes.com

Here’s another one from Edelman Financial:

Home Ownership Equity

Start Now

If you’re renting, have had credit issues, and don’t want to wait for that ethereal day when the bank finally might say yes, contact C4D today. We will do everything we can to make home ownership a reality and not just your dream.

Minnesota Contract For Deed: 2018 Realtor Guide

1024 451 Sam Radbil

As a Minnesota Realtor, you have probably seen some bizarre and arbitrary loan rejections, but that doesn’t make you or your client feel any better. Approaching a lender for bad credit loans may not help since their rates can be predatory. What you do need to do is find a lender that will facilitate a contract for deed deal.

For example, you’re confident that you have a reasonably qualified client, and you’ve found them the perfect home. Your client is excited, has a down-payment, you write the offer, it’s accepted, and you’re off to the bank. The bad news comes quickly, however, as the lender claims that your buyer doesn’t qualify for financing. According to GoBanking Rates, buyer financing can be denied for not only a weak debt to income ratio but also for any of the following reasons:

  • A recent job change.
  • Credit report errors.
  • A property appraisal that comes in less than the purchase price.
  • Old liens and judgments.
  • Recently opened or closed credit card accounts.
  • Early retirement.
  • Excessive business debt.
  • 1099 income/inability to prove written off expenses.
  • Questionable tax returns.
  • Inability to substantiate where the down payment came from.

Legitimate Financing with Contract for Deed

The Minneapolis Federal Reserve Bank wrote a great article explaining the methods, risks and benefits of a contract for deed to finance Minnesota real estate. They simply state:

In a contract for deed, the purchase of property is financed by the seller rather than a third-party lender such as a commercial bank or credit union. The arrangement can benefit buyers and sellers by extending credit to homebuyers who would not otherwise qualify for a loan. Indeed, public and nonprofit housing advocacy organizations have used the contract for deed as a tool to help low- and moderate-income households attain homeownership.

This U.S. census bureau chart shows a solid percentage of contract for deed homes and Hispanics are major subscribers to this type of bad credit loan solution.

Owner-Occupied Homes with Contracts for Deed in The U.S.

Minority Homebuyers Using Contract For DeedSource: American Housing Surveys 2001, 2003, 2005, U.S. Census Bureau.

Minorities Want To Buy Homes

Furthermore, this recent report from ABODO shows Realtors in Minnesota exactly where minority homebuyers are active, and Minnesota is right in the middle at 40 – 49 percent.

ABODO Report on Minority Homebuyers

The Mechanics of Contract for Deed Minnesota Financing

For individual contract for deed sales to work properly, the seller must realize that they will not get the full purchase price immediately. Instead they are offering an installment plan sale to their prospective buyer. While the buyer will gain immediate occupancy, the seller still holds the deed will remain the owner of the property until all payments are made. This is a great path to home loans with bad credit for the buyer, but the seller, again must be in a position to take installment payments rather than receiving a lump sum payment.

Free and Clear … and Legal?

Contract for deed Minnesota home financings are simpler if the seller owns the property free and clear of all liens and mortgages.  This way, the seller must wait until all installment payments have been made, but since there are no third parties—like banks—to deal with, all of the money goes to the seller; they merely have to wait longer to get the total amount due them.

While a seller with a bank mortgage on a property could sell that property on a contract for deed basis, this could be a problem for a buyer since the seller’s original mortgage may prohibit this type of transfer, and that could put the buyer at risk, if the bank discovers the sale.

In many states, especially Texas, this kind of solution to a loan with bad credit is done frequently. When the buyer asks about the due on sale clause in the seller’s original mortgage, the usual reply is “the bank will never find out, and if they do, they won’t care. Banks would never foreclose on a property if someone is making the payments.” Yes, this may be the case in some situations, but you as a Minnesota Realtor know that it is not prudent to believe that someone “would never” do something.

How You Can Get This Done

Luckily, there are companies like C4D. C4D specializes in Minnesota contract for deed deals. Unlike some individual sellers, however, C4D does not put the buyer at risk with original mortgage due on sale clauses because their banks do not require them. C4D has spent years developing solid banking relationships, and this drives successful and mutually beneficial financing arrangements.

How Contract for Deed Actually Works

Certainly, Minnesota real estate professionals should try first for conventional bank financing. If this fails, however, take the deal to C4D. C4D will analyze the situation, and quickly let you know if they can help. Minnesota Realtors understand that while C4D cannot automatically take any deal, they do have the approval leeway that many banks just do not possess.

C4D looks at every deal individually and independently. This is not cookie-cutter lending because C4D understands that all situations are different. Some loans may require different down payment percentages, and in certain circumstances, C4D can even help secure down payment dollars.

If a deal is approved, C4D physically buys the property from the seller and offers a contract for deed to the buyer. As in classic contract for deed financing, the seller owns the property, but the seller is now C4D.

Contract For Deed Is Simple

Since the 2009 meltdown, mortgage approval can be tricky. You can have a great buyer but the banks just say no. If this happens to you, bring your deal to C4D—a local Minnesota company—and see what they can accomplish. By the way, your Minnesota Realtor commission is totally unaffected by this process, and you will receive the full amount upon contract execution.

What are the Next Steps?

If you have any questions about Contract for Deed financing, you can always contact us here.