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What Are the Benefits of a Contract for Deed vs. Renting?

by Marie Murdock, studioD

During uncertain economic times, you may opt to enter into a contract for deed to purchase a home or land rather than rent. A contract for deed is an agreement whereby the purchaser makes payments to the seller of the property for the right to live in a home or use land for a specified period of time. Once you, as purchaser, have paid all payments due and fulfilled the terms of the contract, the seller will deed the property to you. If you do not want to rent, yet fail to qualify for a traditional loan, a contract for deed may work for you.

Anticipated Ownership

Anticipated ownership is one of the more attractive features of a contract for deed. If you have had a financial setback, making payments under a contract for deed gives you time to improve your credit score while building equity in a home or land. Even if you have a good credit score and own a mobile home, you may be unable to find a traditional lender who will lend you money to purchase the land to put underneath it without requiring your mobile home as part of the collateral. Under the terms of a contract for deed, you do not risk losing your mobile home while paying for the land.

Leased Property

Once a traditional lease has expired or is terminated, you, as tenant, have no interest in the property that you have rented. Under the terms of the lease, you are essentially purchasing the right to stay in a home for a period of time, but are building no equity in that home. The landlord governs your actions related to the property throughout the terms of lease, so you may have no authority to make changes to the property. A tenant who desires homeownership may feel his money is wasted by paying rent each month.

Contract Terms

Contracts for deed are often negotiated to include terms that allow more flexibility for both parties than would be the case in a conventional loan. For instance, if you wanted to negotiate an early payoff by making extra payments, that could be written into the contract. If you wanted to choose the homeowners insurance company, that could be included. With a standardized lease, you are merely a tenant. You pay a set amount of rent during each lease term and it may be more difficult to customize the lease agreement to fit your needs.

Rent Increase

If you live in a rental home long enough, you are likely to see your rent increase incrementally over time. With a contract for deed, you know your payment amount each month since it is stated in the contract. Paying an established amount each month under the terms of a contract for deed may allow you to more efficiently manage your household budget.

About the Author

Marie Murdock has been employed in the legal and title insurance industries for over 25 years. Murdock was first published in print in 1979 and has been writing online articles since mid-2010. Her articles have appeared on LegalZoom and various other websites.

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