What is a Contract for Deed and How Does the Program Work?
The contract for deed program is designed to make the path to homeownership easy and straightforward, with a quick and efficient timeline that can take as little as 5 days from start to finish. Here's an overview of the four main steps in the process:
- Pre-Qualification: To get started, you'll need to get pre-qualified so we can notify you of available properties that meet your criteria. This step is free, has no obligation, and won't impact your credit score. Simply provide us with some basic information about your desired property location, condition, financial situation, and any other criteria, and we'll let you know which properties might be a good fit.
- Property Tour: Once you've been pre-qualified, we'll schedule a property tour so you can gather more information about the property and decide if it's the right fit for your goals. During the tour, we'll answer any questions you have about the property and the contract for deed program, and help you make an informed decision about whether to move forward.
- Secure Your Home: If you decide to move forward with a property, the next step is to submit a down payment, sign the contract for deed agreement, and transition the property utilities into your name.
- Move In: Complete the journey by moving into your new home! We'll quickly set a convenient move-in date, typically within days after finalizing the contract. On this day, you'll receive your keys and a welcome packet with essential property information, including warranty and maintenance tips. Our goal is to ensure a smooth and stress-free transition, allowing you to immediately start enjoying your new home.
A contract for deed, also known as a land contract, is a type of real estate transaction where the buyer agrees to purchase a property from the seller through a series of installment payments. Unlike a traditional mortgage, where the buyer obtains a loan from a bank to finance the purchase of the property, in a contract for deed, the seller serves as the lender and the buyer makes monthly payments directly to the seller. The seller retains legal ownership of the property until the buyer has paid the full purchase price, while in a traditional mortgage, the buyer obtains legal ownership of the property and the lender holds a lien on the property until the mortgage is paid off. In a Contract for Deed, once the final payment is made, the seller transfers the deed to the buyer, who then becomes the new owner of the property.
It is our mission to make homeownership accessible to everyone, and this is reflected in our low down payment requirements. The down payment on most properties is around $5,000, which is a nonrefundable deposit that is applied to the purchase price, secures the property for the buyer, and is due at the time of signing the agreement. By keeping the down payment low, we help buyers overcome one of the biggest hurdles to homeownership and start building equity in their new home with a more manageable financial commitment.
We take care of property taxes to ensure that buyers don't have to worry about additional expenses while working towards homeownership. Hazard insurance is purchased by the buyer with Monarch Homebuyers listed as additional insured. Hazard insurance can be purchased by us and reimbursed by the buyer through their monthly recurring payment. However, it's important to note that the insurance purchased by us only protects the house itself from damage and not personal belongings, which is why we recommend the buyer purchasing insurance.
The contract for deed program offers clear title properties with no liens to ensure buyers have a worry-free purchase. Although the properties may require TLC, buyers have the freedom to upgrade their home to their own taste and on their own schedule. Prior to agreeing to purchase, buyers are responsible for inspecting the property and doing their own due diligence for any needed upgrades. The best part is that there are no additional costs beyond the down payment, as we absorb all closing costs for you!
Is This for Traditional Homebuyers or Real Estate Investors?
The short answer is, both! Our contract for deed program offers a unique opportunity for both traditional homeowners and investors to purchase and have immediate access to properties with a much smaller down payment and without the need for a credit check, income verification, or background screening.
For traditional homeowners, this program allows them to have full access to their property and the ability to renovate, decorate, and start building equity, with a lower barrier of entry and less stringent underwriting requirements than those of a traditional lender. Instead of paying rent, they can make monthly payments towards ownership of their property, providing a path to building long-term wealth and stability.
For investors, the contract for deed program offers an opportunity to quickly renovate and cash flow their properties with a low down payment and significantly fewer fees and interest points than hard money loans. The monthly payment often allows for a margin from the market rental rate, providing an opportunity to generate monthly cash flow from the investment. Additionally, investors can acquire multiple properties and scale their real estate investment portfolio seamlessly.
You might be a good fit for this program if…
- You would prefer to put a smaller down payment towards the property instead of the typical 20% down required by an institutional mortgage lender
- Your credit score or debt-to-income ratio aren’t quite there yet
- You’re self-employed or just got a new job
- You would rather put your rental payments towards building equity
- You want to scale your rental portfolio without tying up too much capital in one deal
Managing Monthly Payments
As a buyer, with the exception of property tax payments, your monthly payment will never change throughout the life of the loan. It is a fully amortized principal balance with a set interest rate and term. Buyers enjoy our ACH autopay system because it ensures a convenient and hassle-free payment process. We take care of all the setup prior to move-in and payments are automatically deducted from the buyer’s account each month. This eliminates the stress of paying on time and the worry of missing payments and incurring late fees.
Making timely monthly payments is essential for avoiding late fees and the risk of defaulting on your property. All payments are due on the first of each month. If we have not received payment by the fifth of the month, there will be a 10% late fee added. If we don't receive your payment by the 12th, we may have to file an unlawful detainer, which could lead to eviction. It is important to stay up-to-date with your payments to enjoy a smooth and stress-free experience.
All of our houses purchased using a contract for deed are fully amortized over a set period of time, usually 30 years to ensure monthly payments are manageable for buyers. If you want to move out before the end of the term, you have 3 options:
- Pay off the principal balance on the loan by selling or refinancing the property.
- Turn the property back over to Monarch Home Buyers of America by signing a release agreement.
- We offer a $500 move-out credit which is eligible for buyers who do not want to wait to refinance or sell the property in order to move. To qualify for the move out credit, you just have to have lived in the property for at least 12 months, be current on all payments, and provide us with a 30-day notice.