Can I Refinance a Contract for Deed?

A contract for deed is simply a written agreement -- between the buyer and property owner -- setting the price, interest rate, down payment, term of payments and other conditions for buying real estate. Essentially, the seller acts as a bank. Compared to conventional mortgages, contracts for deed are faster, more flexible and easier to set up for both parties. However, you need to make sure your contract allows for the possibility of early payoff and that the seller has clear title to the property. Other names for a contract for deed include land contract, bond for deed and installment land contract.

Historically, contracts for deed have been popular with would-be homeowners who otherwise wouldn't be able to qualify for a mortgage: young adults just starting their careers and people living in areas with high real estate values compared to their income. To refinance your contract, your credit history must be good enough to qualify for a mortgage.

Sellers offer contracts for deed to potential buyers for various reasons, including tight credit, competitive markets, and because no bank would ever finance the property in question. Examples of the latter could include houses that are overpriced, those in need of major repairs, or those for which the ownership history is clouded. When you proceed with refinancing, the bank must get a clear title and appraise the property to make sure the purchase price is appropriate to its value.

There may be good reasons to keep your contract for deed. However, if you have good credit and you plan to stay in your house a few years, it might make sense to refinance. It's definitely a good idea if you can qualify for a mortgage and you have a large "balloon" payment coming due shortly. Just make sure the numbers work out for you to recoup your closing costs, which could be several thousand dollars.