Buyer Real Property Contracts
- You do not have to qualify for a Real Estate Contract like you do with a conventional mortgage.
- With a Real Estate Contract, you don’t necessarily have to have a large down payment to close on the property. Your seller will likely want some sort of down payment, but it’s completely negotiable with the seller.
- If you have no credit or bad credit, an REC gives you the chance to show that you can make payments and eventually refinance and get a mortgage.
- Real Estate Contracts give more room to negotiate on the terms. Usually with a mortgage, the terms are set in stone, but with an REC, as long as both the buyer and seller agree, the terms can be modified however you want.
- Close contact with your lender. With a mortgage, you are usually paying your payments to a large company, which can make them very inaccessible. By actually knowing your lender by name, you can contact him/her with any problems that you have or make them aware of the situation, if your payment is going to be late for any reason.
Seller Realty Contracts
- Since the buyer does not have to qualify for the loan, the seller has access to a much larger market than someone who is only willing to sell for cash.
- Interest rates on Real Estate Contracts are often higher than the rates on conventional mortgages.
- You can use the interest income as an investment. For instance, if you are a retired couple who owns your property free and clear, you can sell the property on a Real Estate Contract. Instead of having a bunch of cash to try to invest or letting it sit in your bank earning you next to nothing, you could sell on an REC and earn 6-7% (or whatever interest rate that you and the buyer agree upon) on your money.
- Interest paid on the mortgage is a tax deduction(IRS.GOV Publication). Even though a third party is buying the property from the seller, the mortgage is still under the seller’s name. The seller will get to deduct the interest paid from his/her AGI.
- No judicial foreclosure on Real Estate Contracts. With a mortgage, the lender has to file for foreclosure, if the buyer is not making payments. With an REC, if payments are not being made, the seller can send a demand letter. If payment is still not made when the cure-default period ends, the seller may terminate the contract.