Contract for deed, does any one know how this works?

We are unable to get a loan for another 14 months, a friend of ours has a house that she is wanting to sale. She is considering doing a contract for deed. We are thinking about approaching her about it, but want to make sure of the facts.Contract for deed, does any one know how this works?
Essentially, the seller becomes the bank for you. You will give her a downpayment, pay her every month, and after an agreed amount of time (3 years, 5, 10, whatever) she'll then sign the deed over to you. Until then, you'll be basically renting from her. She needs to check with her mortgage to see if this is allowed - if the bank catches wind of her making a profit and not living there, she may be subject to an immediate payment clause where the bank forces her to pay all of her mortgage immediately. Sounds like bad news.





You MUST have an attorney draft the contract, with all of the stipulations - when things happen, specific amounts, the interest that will be paid, exact dates, what happens if you can't pay, what you can do if she doesn't hand over the deed, etc.





It's a good deal for her if she trusts you, you trust her, and she can afford to have two houses in her name for a couple of years.Contract for deed, does any one know how this works?
you need an attorney -- the contract has to be drawn up carefully and in the fashion your state permits/approves.





in essence, ownership of property can be divided into legal interests and equitable interests. an equitable interest may exist when someone has made payments or improvements toward the value of the house, but the legal interest [as evidenced by the deed] has not transferred. Note that an equitable interest is almost always second to any and all pre-existing mortgages. Whether one precludes later re-fi activity, or a later second lien depends on details that your attorney will handle [if possible in your state].





contract for deed is an agreement under which you pay on the contract with the agreement that you will receive the deed [and full legal ownership] at a specified later date. It creates a form of equitable interest.





land contract, in some states, may be similar.





lease with option to buy can be structured to accomplish the same end, but has its own tricky points which must be done correctly.





which form or vehicle to use is a question for an experienced real estate attorney in your state.
Basically you provide 10-20% down payment to seller and make payments for a specified period of time, say 5 years. Before the end of the (5 yrs) contract you go for financing on your own and pay off the contract and you pass the title/deed to the lender. The only caveat is if the seller defaults on the mortgage for whatever reason, you could stand to lose your down payment and be evicted. This is pretty common today. And you have no recourse. Sometimes the lender will work with you, but if the seller for example refinanced that mortgage to the hilt, you might not be able to afford the offer the lender would make.





If you are going to consider this avenue, I would use an attorney to draw up the contract.
It sounds like rent with option to buy. Ask a realtor that specializes in doing these in your area or real estate attorney.