What To Know When Buying A Minneapolis Duplex Contract For Deed?

When Minneapolis duplex mortgage interest rates began to rise, many would-be buyers suddenly utter an old, familiar phrase; “contract-for-deed”.

In a contract for deed, also known as a land contract, a duplex seller agrees to act as the bank for the buyer. All the terms of the contract, including down payment, interest rates and amortization schedule and the length of the contract.

What’s typical?

Many buyers mistake the term contract for deed to mean no money down.  While deals like that are legendary among podcasters and in Internet forums, the fact is, they don’t happen very often. There are a few of reasons for this. For example, duplex sellers typically want the buyer to have something to lose if they default on the loan; mainly a down payment. They also don’t want to have to come out of pocket to pay Realtor’s commissions or their own closing costs. And, most want to have something to put in the bank as well.

Therefore, a contract-f0r-deed most often requires a down payment big enough to cover all of that.

While mortgage rates are negotiable, most are at a rate slightly above market. In short, if a seller is willing to delay receiving the entirety of the proceeds from the sale of their duplex, they want to be incentivized to do so.  The standard practice then is if the going rates with a bank are 7 percent, a seller may be willing to carry a note at 8 percent or something more.

Finally, there is the misconception that a seller will be required to be the lender for the entire term of the contract. While most contracts are amortized over the same length of time as a typical residential mortgage (15 or 30 years), there is typically a balloon payment at a pre-determined length of time. For example, the buyer agrees to refinance the property five years from now, regardless of interest rates.

It’s also important to know and remember that a property purchased on a contract may be foreclosed upon without court proceedings. If a buyer simply misses two payments, the property returns to the owner carrying the note.

As always, if you’re entering a contract for deed as a buyer or a seller, it’s important to consult legal and tax professionals before you sign any documents.

It can be a great way to buy property — if you know what you’re doing.