7 Benefits to Purchasing with a Bond for Deed
7 Benefits of Purchasing with a Bond for Deed
A Bond For Deed (BFD) is a contract to sell real property in which the purchase price is to be paid by the buyer; to the seller in installments; and in which the seller after payment of a stipulated sum agrees to deliver title to the buyer (very similar to what some other states call a conditional sale or land contract).
In theory, bond for deed contract can be used in any real estate transaction. However, in practice, it will work on terms that everyone can live within only 15% to 20% of the time. Here are 6 benefits to purchasing with a Bond for Deed.
Following are seven benefits of purchasing a property with a Bond for Deed.
1. Income tax deduction for buyer
There are benefits to a buyer in a BFD transaction. The purchaser is able to deduct the interest portion of their payments on their federal income taxes. Their agent should make their purchaser aware of this advantage. The escrow company will send a 1098 interest statement to the buyer on or before January 31st of the following year.
2. Can cost less than going through financial institution
Purchasing property by BFD can be significantly cheaper than acquiring financing thru a lending institution. There are no mortgage company fees, such as appraisals, credit reports, origination points, and so on. This can save the purchaser thousands of dollars. It is also much cheaper than doing an assumption of a mortgage, where many of the same fees apply.
3. No lenders means fewer steps to complete prior to sale
There are also no lender approval issues. The contract is negotiated between the parties and is not dependent upon locating the proper financing. This makes the process much quicker and more certain.
4. Good for buyers with less than great credit
Since there is not an issue of Lender approval, the buyer can have less than perfect credit and still execute a bond for deed contract. The agent should make certain that the buyer will be able to make the monthly payments, but concerns like a past bankruptcy or other credit problems will not prevent a sale.
5. Purchaser builds equity through BFD
A purchaser in a BFD contract is building equity in the property they are purchasing.
6. Often used by first-time homebuyers
There is a pride of ownership and sense of community instilled in the buyer. In many cases, a BFD purchaser is someone who has never owned a home prior to this transaction and would not have been able to acquire the financing to purchase a home in a conventional manner.
7. Purchaser may sell the property at any time (provided he can pay the sums outstanding on the BFD)
The purchaser is now a property owner and is not merely leasing the property. The purchaser may sell the property at any time, so long as there are enough funds available to pay the sums due under the BFD.
Southern Title, Inc. is proud to have been Louisiana’s first licensed escrow agent. Contact one of our Bond for Deed specialists at (504) 367-2333.