How to Obtain an Equity Line for a Home Under Contract for Deed
Contract for deed is a way for someone with less than perfect credit who might not qualify for a mortgage to become a homeowner, but home equity loans and lines of credit can be difficult to attain. The buyer contracts to pay monthly payments to the owner for a set number of years. The owner retains the title to house and relinquishes it to the buyer at the end of the contract term.
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Instructions
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Research state laws. Some states will allow for a homeowner to get a line of credit for a home that is under contract for deed, and others have outlawed the practice completely.
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Include it in the contract if you believe you are going to be seeking the line of credit. This, of course, must be done before the contact for deed has been created. Make sure to include the stipulation in the contract when it is drafted so the buyer is fully aware and signs off on the practice.
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Build sizable equity. Because the owner owns the deed, the equity in the home belongs to the deedholder. If you already own the home before the contract for deed, then you have 100 percent equity. If you are still making payments, then the more equity the better. The bank wants as much protection as it can in case you default on the loan.
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Find a receptive bank. Not every bank will be receptive to creating a home equity line of credit or loan with a home under contract for deed. When you do find a bank that is willing, it will want the term to end before turning over the deed to the buyers.
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Keep up the payments. As the owner of the property, if you default on the loan and it goes into foreclosure, there is little protection to the buyer. The contract will be voided and the buyer will either have to move out or work on a contract for deed with the bank. Also, they will have the option for suing in civil court.
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References
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