Contract for Deed: A private financing for the lot

Guest 0.10 Dollars($)

If you have a contract for deed on a lot can you obtain a building permit for a home before the contract for deed is up? Also what may you do on the lot prior to when the contract for deed is up We did this because we were able to save interest for 90 days but we want to get started building as soon as possible as we have things progressing faster than expected.

Bill · Posted: Thu May 25, 2006 1:26 pm Post subject:

Hi Dale,

A Contract for Deed is essentially private financing for the lot. Regardless of the financing for the lot you will need to be Deeded onto the property prior to building ... or you are building a structure on somebody else's property.

Generally speaking, if you are building a home on a lot you will need to work with a builder with a line of credit that can pay-off the lot outright and build your home to completion. This type of building arrangement will only require that you obtain an end-loan for the completed project.

If you need to obtain your own construction financing I advocate considering One-Time Close Construction financing to keep your total loan fees to a minimum. This type of financing must be completed prior to breaking ground on the new home. Home plans, specs and contractor bids must be included in the mortgage loan application. Upon loan closing, the first draw against principle will pay for the lot and your name will be deeded onto the property along with the lender.

During the construction period of the loan, the builder will complete the home in phases. Additional draws reimbursing the builder for work completed will be granted upon proper inspection of the completed work. When the home is completed the final draw to 100% of the principle amount will pay-off all contractors and the loan will then convert to an End-Loan.

It is important to note that Construction-To-Permanent or One-Time Close Construction Loans generally include a floating interest rate with Monthly Interest Only Payments due on the draw balance during the construction period. The Lock-in Rate is effective upon that last draw and conversion of the loan to an End-Loan. If floating your rate does not seem like a good idea, there are options of paying extended lock fees guaranteeing a rate ... however, the cost of locking-in a guaranteed rate for an extended period of time may prove to be expensive - so choose to do so based on a complete understanding of the risks and costs.

I hope that this answers your questions regarding lots, building and how to finance it.

Guest 0.10 Dollars($)

Hi Dale,

I would like to caution you regarding your contract-for-deed purchase. You should make sure that you obtain an owner's title insurance policy so that you are assured that the seller owns a marketable title.

With a contract-for-deed sale the seller retains the legal title to the property and you become the equitable owner entitled to the benefits of the ownership.

You must see that your interests are protected and for that you must get the contract-for-deed recorded to prove that you have a legal right to acquire the title when the payment for the remaining amount is made.

I am not too comfortable with this kind of purchase and I am sure that you are consulting a lawyer to get the transaction reviewed. It will assure you that you are well protected. I have found a section on contract-for-deed while going through this site. You can check it too.

Murphy

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