Details of Predatory Home Buying through Contract-for-Deed

Homebuyers who choose to use a contract-for-deed to purchase a property are often doing so as an alternative to traditional real estate investing. While there are many advantages to contract-for-deed financing, one major drawback is the risk that exists in securing a loan through a contract for deed. In addition to the inherent risks involved with this type of mortgage, many consumers fail to realize that the contract-for-deed document contains certain conditions that can make it difficult or even impossible to foreclose on the property. As a result, homebuyers should be very careful in how they approach this type of loan, especially when the contract-for-deed is secured by a second mortgage.
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One condition that can make securing a loan through a contract for deed problematic is interest rates. Interest rates are lower when secured by a deed of home than they would be if the same mortgage were used for an unsecured loan. While this may sound like an attractive incentive to borrowers, the fact is that this type of loan comes with an extremely high interest rate attached. Many homeowners who choose this method to finance a home are then surprised to discover that once they default on the loan, they will owe much more in finance charges than the amount of money they initially owed. Fortunately, though, most homeowners will be able to keep their home by paying down the balance of the loan and renegotiating a lower interest rate.

Another problem area for contract-for-deed home buyers is the relatively limited number of lenders willing to originate these loans. While there are a few established lending institutions that do offer this type of mortgage, the lending market is extremely competitive and there are few options for homebuyers looking to secure financing. In many cases, borrowers are required to have a financial record which is not conducive to obtaining a loan. This makes contract-for-deed home loans a particularly attractive option for borrowers with bad credit histories or poor credit scores.