real estate

Bad Credit Score Home Financing

Buying A Home With Bad Credit: Is It Possible?

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Buying a home with bad credit can be virtually impossible for some people. And if you’re a person who is impacted by a terrible credit score (reasons below), then renting a home or apartment may seem like a great idea.

You’ll have no taxes, no maintenance, no real long-term commitments, and you won’t be stuck with a property you don’t want if you decide to move. But when you realize that your monthly rent payment is just like a car lease payment with none of it applying to equity, you may decide it’s time to become a homeowner. If your credit score is low, and you are unable to qualify for a mortgage, then you you may want to look at non-traditional financing.

Here are some reasons that you might not qualify for a mortgage loan:

  • you have delinquent student loans,
  • overdue credit cards,
  • late auto payments, or
  • bad Minnesota credit.

And just take a quick glance at this chart and you’ll see why student loans are such a HUGE issue.

Buying A Home with Bad Credit - Student Loans

If this is the case for you, and you truly are serious about buying a home with bad credit, then check out these methods to buy your dream home:

Get Someone to Buy It for You

If you’re lucky enough to have a rich uncle, maybe he or she will purchase the property for you and put your name on the deed. You could make the mortgage payments and start building equity.

Work on Your Credit Score

Buying A Home With Bad Credit - Your Score

Alternative financing for people who take aim at buying a home with bad credit is sometimes necessary because your credit report is incorrect. Avoid the necessity of finding MN bad credit financing by obtaining your credit report at Credit Karma and following the proper procedures for correcting errors. The folks at myFICO say:

“It’s important to note that repairing bad credit is a bit like losing weight: It takes time and there is no quick way to fix a credit score. In fact, out of all of the ways to improve a credit score, quick-fix efforts are the most likely to backfire, so beware of any advice that claims to improve your credit score fast. The best advice for rebuilding credit is to manage it responsibly over time. If you haven’t done that, then you need to repair your credit history before you see credit score improvement.”

Do a Rent to Own

In a rent to own transaction, those looking for MN bad credit loans can purchase a home by entering into a rent to own agreement. With a very small deposit, renters can arrange for a portion of their monthly rent payments to be put toward a down payment or a reduction in the final home selling price. These transactions are complicated, however, and it’s important to gain legal representation before signing any rent to own contract.

Get a Private Mortgage

You don’t have to get a mortgage from a bank; anyone can lend you the funds. Maybe your boss, a relative or a private lender would be willing to help. You could offer to pay a higher interest rate or could offer to pay an origination fee.

Buying A Home With Bad Credit? GO FHA

Even with a low credit score, FHA loans can still be a possibility:

FICO Credit Score

These can be obtained through any participating mortgage lender. Even if you have a previous foreclosure or bankruptcy, FHA federally guaranteed loans can be a great option.

Get a Contract for Deed Deal

Minnesota contract for deed loans are commonplace. In this scenario you first find a property for sale by owner. Then, have the owner agree to sell you the property on a contract. While many contract for deed sales are straightforward, legal representation is very important here, because a sale of property already encumbered by tax liens and/or judgments, for example, can cause you big trouble.

A Great Place to Find Help

C4D is a well-respected and established company that helps Minnesota home buyers with bad credit through the process of becoming a homeowner. While there are other agencies and companies that will assist, C4D is directly plugged in to the MN contract for deed network. Maybe think about contacting us while you search for bad credit financing.

Rent to Own House in Minnesota

Rent to Own vs. Contract for Deed

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So you want to buy a house in Minnesota? You don’t want to do a rent to own deal or use some method of
“non-traditional financing.” In that case, it should be as easy as the steps below, right?

  1. Go to the bank
  2. Talk to a respectful and trusting loan officer
  3. Fill out some documents
  4. Prove income
  5. Walk out with an approval for a $500,000 mortgage with low rates like the ones shown in this chart:

Unfortunately, however, that privilege is many times reserved for those with stellar credit, while others with the following issues may have to look elsewhere:

  • Low credit score
  • Judgments
  • Garnishments
  • Divorce
  • Self-employment
  • Tax liens
  • Low debt/income ratio
  • Job loss
  • Unverified income
  • High student loan balances
  • Delinquent credit cards

Luckily, there are alternative financing methods (since renting might not be your best option as Minneapolis rent prices are skyrocketing) like rent to own and contract for deed. With new residential sales still on the upswing as shown in the chart below, non-traditional mortgage products are very popular.

Median Home Price

How Rent to Own Works

Rent To Own Details

In a rent to own scenario, you first find your house, and if the owner agrees to enter into this type of non-traditional financing, you agree to a monthly rental amount, and pay a small up-front option fee that gives you the right to buy the home within a certain time period—usually no longer than three years. It is important to have a least a portion of your rent credited to the purchase price. So, if your rent is $1000 per month, for example, try to have at least $800 of your monthly payment applied to the purchase price of the house. Of course, the purchase price should be agreed upon ahead of time, and all of these components should be outlined in your Minnesota rent to own agreement.

The Advantages

  • Your rent money is going toward equity.
  • You have a fixed price for the eventual purchase.
  • You aren’t responsible for property taxes, and possibly not for maintenance.
  • You are locked in to more than a one-year lease.

The Disadvantages

  • You will have to find financing at the end of the lease term.
  • You could lose your option money if you can’t obtain a loan.
  • If you and the seller have over-estimated the home’s value, you could be underwater at the end of the rental term.
  • The property could be encumbered by liens you aren’t aware of.
  • If you don’t finish the deal your option money will be lost.
  • If you miss a payment, the entire deal can be voided.

Contract for Deed

Many who seek alternative financing turn to MN contract for deed instead. With this process, you have an actual contract to purchase the property at a fixed price. As the Minnesota Federal Reserve has said,

“In a contract for deed sale, the buyer agrees to pay the purchase price of the property in monthly installments. The buyer immediately takes possession of the property, often paying little or nothing down, while the seller retains the legal title to the property until the contract is fulfilled.”

Minnesota is and has been a leader in the utilization of contract for deed instruments for those that need bad credit financing. The process is well-regulated and recognized by many as an efficient and reasonable home financing method for those with special credit situations. In contract for deed:

  • Your payment is not rent–it goes toward the home purchase.
  • You have no option money on the table to lose.
  • Your contract term can be longer than a rent to own agreement.
  • You have home financing at a fixed interest rate.

Minneapolis Federal Reserve

But Wait — Minnesota Is The Leader

If an unscrupulous owner sells a property that is already encumbered with liens, that can be a problem. In addition, if an owner files for bankruptcy during the contract for deed term, this can cause serious difficulties.

The Solution

A great way to avoid the pitfalls of both rent to own and Minnesota contract for deed is to deal with a reputable seller. While there are well-intentioned sellers in the contract for deed arena, companies like C4D take the process a step further as they are in the business of ensuring that the financing process is equitable, legal and fair. And, of course, never enter into any financing transaction without consulting with your attorney.

Are Realtors Losing Money on Seller-Financed Deals?

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You have a quality lead on a new listing, but you get some news  — it’s going to be seller-financed. Now what? Can you still get real estate commission? Is it going to be 6 percent? Should you even bother with clients like this?

Well, if you’re a Minnesota Realtor then you know all there is to possibly know about Minnesota real estate commission, right? And you know all there is to know about seller-financed commission, right? Well, if not, here’s what you absolutely need to know.

First off, let’s face it, good Minnesota real estate professionals just do not give up on deals because of bank denials. Rejections occur for many reasons (just take a peek at the chart below):

  • High student loan balances.
  • Low credit score.
  • Divorce
  • Job change.
  • MN bad credit.
  • Recent foreclosure.
  • Bad debt/income ratio.
  • Tax liens and judgments.
  • Arbitrary loan officers.
  • Inability to prove income.
  • Small business ownership.

Minnesota Realtor Commission

If your client was denied by Bank of America, for example, hopefully you keep working the deal even though a credit union or a community bank also gives the thumbs down. In situations like these, trying to find homes for sale by owner and working a MN contract for deed sale might be the answer. While you may be hesitant to enter the subprime financing arena, there are many well-intentioned potential homeowners with bad credit that just need a way to buy a home.

Sub Prime Mortgages

Homegates states that a contract for deed lets buyers purchase a home without a mortgage. When a buyer and seller sign a contract for deed or contract for sale, the buyer agrees to pay for the property in installments. The seller retains the deed–the document that transfers title–until the buyer has fulfilled the contract by making the final payment.

Serious Commission Issues

Commission for Real Estate

OK, you found a seller that will agree to a contract for deed transaction. Of course, you now need to make sure that the property is not encumbered by liens or other mortgages, and a title search will accomplish this. After all due diligence has been completed, an attorney should draft the Minnesota contract for deed documents.

You’re Not Done Yet

In a traditionally financed real estate transaction, the Realtor’s commission is protected, and will be paid from the sale proceeds. In a contract for deed transaction, however, disputes can arise as to who is responsible for paying broker commissions. The seller may say, “I’m not paying real estate commissions to anyone. I never signed any agreements that obligated me to do so.” The buyer may state, “Commissions have to come from the seller. I have enough problems already; I’m probably paying a subprime interest rate to get this deal done, and I can’t afford any more expenses.”

What Is The Buzz?

A recent Trulia FAQ page offered this advice:

“Here’s a solution: Don’t act in the capacity of an agent (meaning you are not representing buyer or seller… just yourself). Calculate the equity in the home. Negotiate a price that leaves you (buyer #1) some equity. Draft up an assignable purchase agreement for the negotiated price. Assign the agreement to buyer #2 for a certain percentage of the purchase price. There’s your payment… now walk away.”

If that seems complicated, you’re right. A better way to protect your real estate commission is to be transparent when submitting a contract for deed transaction to the seller. Let the seller know that the deal should work like any traditional financing scenario where broker commissions are protected. Reasonable sellers should realize that real estate commissions are paid in most transactions.

Ensure That You Receive Your Commission

In some cases, reasonableness just does not apply, but luckily there are some reputable Minnesota contract for deed companies that will engineer these transactions. Our company, The C4D Crew, makes the point that they always protect broker commissions.

These intermediary financing specialists are a great place to turn if you need to do a seller financed deal because they will actually purchase the property from the buyer and then sell it to your client with a MN contract for deed. Using an experienced and respected company will greatly increase chances that your deal will close while, at the same time, ensuring that you do receive your commission.

The Real Estate Commission Basics 

For more information on the basics of real estate commission, check out this video from Redfin.

Millennials Overcoming Mortgage Rejection

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What is a Millennial doing in 2018 with regard to home buying? Does anybody actually know?

We’ve even been told millennials aren’t buying homes because they buy too much Avocado toast.

Getting a traditional mortgage approval can be a great relief, but some millennials may have a problem qualifying for their first home because of the following:

Millennial Down Payment

  • Bad credit
  • High student loan balances
  • Less-than-solid credit history
  • Too few open accounts
  • Too many open accounts
  • Credit report errors
  • Unpaid tickets
  • Low credit score
  • Unfavorable debt to income ratio
  • Low down payment
  • No down payment
  • Maxed-out credit cards

What to Do If You’re Denied a Mortgage

This report (and chart to the right from ABODO Apartments) shows us that millennial home buyers are all over the country, even if they’re buying at a slower rate than expected. If millennial home buyers can’t get financing, here are seven ways they can overcome mortgage rejections:

Millennial Home Buyers

1. Credit Report Errors

Always get a copy of your credit report before you apply for financing. If you’re a millennial home buyer and you haven’t done this, however, don’t worry, because if you find incorrect information on your report, you can get it removed. Doing that can substantially increase your credit score and could result in a decision reversal. Credit Karma is a great place to start.

2. No Down Payment

Of course, you know that down payments are usually required for Minnesota home loans, but you may not be aware that lenders demand to know where the money originated. If you take cash advances on your credit cards and max out your lines, lenders will not be too pleased. A down payment gift from a relative or friend is many times acceptable as long as you disclose where the money came from.

3. Student Loans

Massive student loan debt is often the norm, but if you have delinquent loans, or worse yet, defaulted loans, this can cause a quick mortgage application rejection. Make sure that all of your student loans, both private and federal, are in good shape. Go to the NSLDS to find out your federal loan balances. Mortgage lenders do have new rules to follow regarding the payment amounts they have to consider in relation to your income, so high loan balances alone may not be the problem you they are.

Student Debt Control

4. Credit Cards

High credit card balances negatively impact your credit score, so to position yourself for mortgage application acceptance, you need to pay these balances down before you apply. Lenders like to see that you are using only about 30 percent of your credit lines.

5. Try Seller Financing

If the above remedies aren’t available to you, there still are ways to purchase your first home. InvestorWords says that creative financing is “Any financing arrangement other than a traditional mortgage from a third-party lending institution.”

First, see if your seller will agree to act as the bank. The cleanest way to do this is to have the seller be the mortgagor—just like a bank—and give you the deed for the house in exchange for a small down payment and monthly mortgage payments. Of course, the seller may charge you a higher interest rate because he or she may consider you to be a higher credit risk as they agree to make what they consider a bad credit loan.

6. Rent to Own

If you have found your dream home but just can’t get it financed, see if the owner will let you rent the home while crediting all, or a portion of your rent to a down-payment. These Minnesota bad credit loan transactions can be complicated and risky, but rent to own has worked for many buyers, especially with a homes for sale by owner MN that is motivated. And according the industry leader HousingWire, tech companies like Divvy Homes are working hard to revolutionize the rent to own market.

7. Contract for Deed

Minnesota contract for deed is a proven legal method where a seller gives a buyer immediate home occupancy. The seller retains the deed, but when the buyer has made all of the agreed upon monthly payments, the buyer gains ownership. While less risky than rent-to-own, those interested in contract for deed Minnesota financing should check with their legal team before entering into any such agreement. Also, there are reputable companies like C4D  that will work with you to accomplish the contract for deed transaction.

If you were rejected for a mortgage, first try and correct the application deficiencies that caused the issue. If that doesn’t work, you may want to look to creative financing to solve your MN bad credit loan problems.

Student Debt and Housing

Buying A House with Student Loan Debt

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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

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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

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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.