Greg's Corner

Avoiding risky home-buying practices

By Greg Collier

For those navigating the home-buying market, it’s crucial to be aware of potential pitfalls, particularly when considering a ‘contract for deed.’ This method involves an agreement where the home buyer makes payments over time directly to the seller, rather than securing a traditional mortgage. While this can seem like an attractive option, it carries significant risks.

The primary concern with a ‘contract for deed’ is the reduced level of protection for buyers compared to standard mortgages. This makes it easier for unscrupulous individuals to exploit the situation. Minnesota’s Attorney General has issued a warning, emphasizing the need for caution and understanding when entering into such contracts. It is essential to fully understand the terms of a ‘contract for deed’ and to be aware of your rights and responsibilities before signing.

Ensure that the seller has paid the home’s property taxes and that the property is not in foreclosure. Unpaid taxes or foreclosure status can lead to serious complications down the line.

Determine if the contract includes a balloon payment, and if so, understand the amount and due date. This lump sum payment can catch buyers off guard and create financial strain.

Before entering into a contract, have a clear plan to pay off the entire amount. Additionally, account for annual property taxes and maintenance costs.

Obtain a professional home appraisal and inspection. This step ensures you are not overpaying and that the property is in good condition.

Be prepared to handle repair costs, property taxes, and general upkeep once the contract is signed. These expenses can add up quickly and need to be factored into your budget.

Check the interest rate being charged by the seller and compare it with rates from lenders. Ensuring the rate is competitive can save you money in the long run.

Record the contract with the county recorder’s office within four months of signing. This step may provide additional protections under the law.

If you find yourself a victim of a scam, report it immediately. Many individuals feel ashamed when they realize they have been scammed, but remember that con artists are skilled professionals. Reporting these incidents helps protect others and can prevent future scams.

In summary, while a ‘contract for deed’ might seem like a viable alternative to traditional home financing, it comes with substantial risks. Thoroughly understanding the contract and being cautious about the details can help you avoid potential pitfalls and make informed decisions in your home-buying journey.